Impact of Monetary Policy Expectation on US Long Term Interest Rates in Global Financial Crisis

The purpose of this paper is to investigate the impact of monetary policy expectation on US long term interest rates in global financial crisis. Three onth OIS (Overnight Indexed Swap) rate is used as market expectation of monetary policy by the FRB. As for market interest rates, US Treasury note yields and swap rates of two years, five years and ten years are used. The expectation of monetary policy formed in the market did not influence US Treasury note yields and swap rates of two years, five years and ten years. One of the reasons is that financial market was under great stress in global financial crisis. Thus the function of price discovery is considered to be lost so that ordinary transmission mechanism from overnight interest rate to long term interest rate did not work. The results of this paper have following policy implication. The FRB could not influence US Treasury note yields and swap rates of two years, five years and ten years through monetary policy expectation formed in the financial market