This paper analyses the impact effects of changes in central bank rates on the term structure of interest rates in nine industrial countries over a period extending from 1987 to 1995. We try to identify an immediate channel linking central bank actions to inflation expectations. Our main results are:
- on average changes in central bank rates had a substantial impact not only on short-term but also on long-term segments;
- while the responses of short-term rates were equivalent across countries, the reactions of long-term rates differed markedly; three groups of European countries can be identified, according to whether, over the period considered, central bank rates rises induced increases (Italy, Spain, Sweden, United Kingdom), no change (France) or decreases (Germany, the Netherlands and Belgium) in long-term forward rates;
- such differences are closely correlated with past inflation records and, to a lesser extent, with public finance imbalances; this outcome may reflect different degrees of credibility of the long-term anti-inflationary commitment of monetary policy, resulting from the market perception not only of the central bank's intentions, but also of the long-run sustainability of the monetary policy stance;
- the estimated relationships show significant changes over time in the US; signs of modification are perceptible also in Italy in 1995. In the recent experience of both countries increases in central bank rates have brought about decreases in long-term forward rates.
