Monetary Policy and the Term Structure of Interest Rates.

This paper proposes and implements a strategy for identifying and estimating the monetary feedback rule used by the Bank of Spain in the period from 1988 to 1996. We present evidence that the estimated feedback rule is plausible and use it to measure the response of the term structure of interest rates to innovations in monetary policy. We find that innovations in monetary policy produce significant, persistent effects on nominal interest rates at all maturities. In particular, a 100 basis point increase in the Spanish intervention rate raises the 5 year rate for a period of 7 months and produces a maximal response of 55 basis points.