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Can Monetary Policy Influence Long-term Interest Rates?



There is a well-worn story that illustrates how economists view financial markets (and, perhaps, the rest of the world). An economist and a noneconomist are walking down the street.The noneconomist spots a $20 bill on the sidewalk and starts to reach for it.“Don’t bother, ” says the economist.“If it were real, somebody would have picked it up already.” to reconciling this position with the empirical evidence resides in the gradual pattern of policy interventions characteristic of the Federal Open Market Committee (FOMC).This pattern, a likely reflection of the Fed’s response to changes in economic activity in the long run (see Rudebusch 2002), is essential to understanding fluctuations in longter

Year: 2005
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