Starting to get things mixed up, please correct me if i’m wrong
Monetary Policy affects the short term rates.
Fiscal Policy affects the long end of the curve.
When you see tightening of either policy, it’s going to increase rates
Expansion / Loose policies will decrease rates for the respective policies.
Correct?
Both expansive/lo0se - > upward slopping curve
Both restrictive/tighten -> downward slopping curve
monetary tight and fiscal loose => flat monetary loose and fiscal tight = upward slopping but less than both loose
The way I remember is monetary policies always have higher effect on the yield curve than fiscal.
Expansive fiscal policy will increase rates on the long end of the curve, not the opposite.
do you happen to know why by chance? Is it because the government focuses on long-term growth and the central bank just cares about the short-term money borrowing rates?
A Central bank can only influence short term rate. It can’t influence long-term rate.
the long term rates of the YC are by definition the view on where ST rates will be so they essentially are affecting LT rates indirectly
monetary polic trumps fiscal in terms of YC shape
downward sloping YC implies the economy will contract
Meant to say direct influence.