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The hypothesis of this paper is that uncertain moeny growth leads to an increased yield spread between short term and long term interest rates. Since current inflation is obviously the same at any given time, the change in the term structure can be explained, in part, by the greater degree of uncertainty in the long term caused by monetary uncertainty. This hypothesis is tested by looking at the spread between short term and long term instruments in Japan and determining if increased monetary instability leads to a wider yield spread. We find that a rise in monetary uncertainty is associated with a wider spread between short term and long term instruments in Japan.
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