Re: Re: U.S. Monetary Policy; Operation Twist?

[Edwin Dickens]

Barnet Wagman wrote:
> 
> Operation Twist?   What does that refer to?

During the Kennedy Administration, the Treasury and the Fed tried to
"twist" the yield curve, or "invert" it as we say today, by purchasing long
bonds and selling short ones.  The idea was to stimulate domestic aggregate
demand with low long term interest rates while protecting the dollar with
high short term rates.  At the time, mainstream economists thought the
Treasury and the Fed would surely fail because longer maturity bonds are
more risky than short maturity bonds, so that market forces will ensure
that the yield curve is always positively sloped.  What mainstream
economists think about the yield curve has changed a lot since the early
1960s.

Edwin (Tom) Dickens