Inferences from Interest Rate Behavior for Monetary Policy Signaling

Weak mean reversion of interest rates towards the long term mean suggests high probability of agents in financial markets failing to interpret monetary policy signalling efficiently and financial market related interest rate unable to achieve equilibrium. Increased randomness penetrating interest rate markets is due to the weak monetary policy signalling effect which dilutes information flow from central banks' to agents in the financial market. In such cases the effectiveness monetary policy erodes as it departs from the objectives