ECON 3P03 Lecture Notes - Yield Curve
19 Dec 2013
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Document Summary
It is useful to government official responsible for stabilization policy. Applications of the yield-curve analysis: bond-portfolio manager responsible for the selection of an appropriate maturity composition. Case study 1: operation twist- an attempt by the monetary authorities to alter the shape of the yield curve. Suggestion: change the maturity structure of government debt so as to raise the short rate and lower the long rate. Higher short rates were expected to encourage short-term capital inflows and thus improve the balance of payments. Lower long-term rates were expected to encourage corporate investment and stimulate economic recovery. The federal reserve attempted to implement this policy by retiring long-term bonds and replacing them with short-term bonds. It is safe to conclude that, at best, the policy was only moderately successful. This can be interpreted as evidence against the segmented-markets theory of the term structure. The yield curve and bond-portfolio management (by banks)
