Interest Rates, Yield Curves, and the Monetary Regime

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Interest Rates, Yield Curves, and the Monetary Regime

"Interest Rates, Yield Curves, and the Monetary Regime" argues that the slope and movement of the yield curve depend on the monetary regime. Thus, the relationship between changes in short-term interest rates—whether resulting from Federal Reserve policies, inflation, or other factors—and long-term interest rates depends on people's assessment of the Fed's commitment to low inflation.

Define the following terms used in the reading:
1. monetary regime
2. yield curve
3. nominal interest rate
4. real interest rate
Compare and contrast commodity standards and fiat systems as monetary regimes. How can one tell if a monetary regime is credible or not?
Why is the yield curve usually discussed in terms of U.S. Treasury debt?
Suppose the inflation rate increases. How will this affect the yield curve if the monetary regime is a credible one? What if the regime is not credible?
Why will the yield curve under a credible monetary regime perform poorly at forecasting a recession?

Source: "Interest Rates, Yield Curves, and the Monetary Regime." Joseph G. Haubrich, Federal Reserve Bank of Cleveland Economic Commentary, June 2004, pp. 1-4.

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