From estimated VAR we compute impulse-response functions to analyze responses of short-term interest rates
to the five types of structural shocks (demand shock, liquidity shock, inflation shock, monetary policy shock, exchange rate shock).
Summary: MUMBAI -- India's central bank on Thursday raised its key short-term interest rates
by 25 basis points -- its 10th hike in 16 months -- in a bid to tame stubbornly high inflation.
Summary: India's central bank RBI slashed its two key short-term interest rates
on Wednesday in a bid to boost a weakening economy amid the slowest third-quarter growth in six years.
Davis points out that a number of observers have expressed surprise that an inverted yield curve between long- and short-term interest rates
would develop in the capital markets at a time when the economy did not appear to be in any immediate danger of tanking.
Since then, the Federal Reserve has raised short-term interest rates
at a pace it believed would encourage growth without sparking inflation.
short-term interest rates
at extraordinary lows (at one point the Fed funds rate was set at 1 percent), financial institutions would borrow on the short end of the yield curve and buy the long end, guaranteeing a nice profit even before taking any risk.
While monetary authorities in the US, the UK and Canada have been raising short-term interest rates
in recent months, long-term government bond yields have been falling and we explore some possible explanations in this section.
Although short-term interest rates
have converged further during 2001, inflation remains higher in Euroland because of the weakness of the euro and higher unemployment.
The second main finding of this study is that the inflation rate Granger-causes short-term interest rates
without feedback, whereas short-run interest rates Granger-cause budget deficits but not vice versa.
Expectations about future short-term interest rates
, for example, can be inferred by comparing the yields on bonds of different maturities, given the assumption that a bond's yield depends on the sequence of short-term interest rates
expected over its term to maturity, plus a term premium.
Longer term, government bonds in Europe will rise in sympathy with Treasuries, perhaps even more so because short-term interest rates
there--despite the recent, vicious correction in bond prices--will continue to drop.