If the expectations hypothesis of the yield curve holds, then the Essay

If the expectations hypothesis of the issuance loop holds, then the goernment cannot - Essay ExampleIn December, 2001 the yield on the Treasury notes which were issued for the period of time of ten years stood at 5.15 percent. The percentile was trustworthy for the negative change in the long boundary interest rates during certain periods, however the terrorist attacks conducted on 11th Sept, 2001 created a major impact on the interest rates, and reported a massive downfall in the long end point interest rates, which had close to dissipated by the end of the year. The analysts put on linked the fluctuating short status and long term interest rates with the reduction in the fund rate, by conventional wisdom, reducing the funds rate by the magnitude experienced last year should cast had some impact on long term interest rates (David, 2002). It is incorrect to associate such a pattern with the ineffectiveness of the monetary policies rather it is the submit and effectiveness of the monetary policies because of which the long rates deport failed to budge as short rates have plunged (David, 2002).The ability and authority of the Central Bank towards providing liquidity, without creating any major impact on the pompousness in terms of rise, is the parameter for evaluating the effectiveness of the monetary policy. ... In some of the related cases, the coincident features of the economy, which are found on the reversals in the stock market, poor corporate earnings, rising unemployment, elevated perceptions of risk (David, 2002), such situations and conditions are anticipate to encourage the savers and lenders to move towards such assets which have greater concentration of liquidity, and are based on shorter era for maturity. Such situations are expected to inevitably drove down short term security yields relative to those on longer term assets (David, 2002), due to the reason that expectations with reference to the stability of the inflation figures are prominent. These forces are responsible for the generation of an environment in which short rates, including the federal funds rate, decline at massive scale, and have relatively little effect on rates at the longer end of the maturity spectrum (David, 2002). It has been argued that the stability of the inflation figures was based on the lower funds rate. It is therefore commonly believed that, if recession and wobbly confidence have driven interest rates down especially short term rates, recovery and restored confidence will, before or later, drive them up (David, 2002).Yield curve is a basic theory which correlates and interprets the interest rate developments over the past year and what it might offer in the future. The yield curve explains the relation and behavior of the returns to securities that differ in terms of the number of months or years in the future that the assets mature, or pay off (David, 2002). The curve explains the relation between effects of maturity on inte rest rates. The Treasury securities operate at inadvertence risk, and are