Using A Dynamic Taylor-Type Rule To Examine The Behavior Of Bond Yields: Some International Evidence

Abstract

A dynamic version of Taylors rule is applied to the analysis of the behavior of short-term and long-term government bonds in different nations. Results indicate that long-term yields are highly sensitive to inflationary expectations, but support was mixed for short-term maturities. Evidence suggests that short-term rates are more responsive to the output gap than long-term rates for all the countries considered. Taylors rule appears to provide insight into understanding similarities and differences in the behavior of interest rate on government bonds of different maturities in the countries studied.