The Park Place Economist


This paper discusses monetary policy’s effects on market behavior instead of the opposite relationship that Gertler and Lown (1999) examined. Sargent (1979) discusses that the rational expectations theory is related to What is the effect of monetary policy on market behavior? Michael Mayberger The Park Place Economist, Volume XXII 79 the term structure of interest rates. He states that long-term yields are a function of current and past short-term rates. In the rational expectations theory, economic choices are based on a rational outlook of all available information and past experiences. The theory suggests that current expectations in the economy are equivalent to what the future state of the economy will be. This contrasts the idea that monetary policy influences the decisions of people in the economy.