Interest rate rules play an important role in the empirical analysis of monetary policy as well
as in modern monetary theory. Besides giving a comprehensive insight into this line of research
the study incorporates the term structure of interest rates into interest rate rules. This is
performed analytically as well as empirically. In doing so state of the art techniques of
modern finance for the analysis of the term structure of interest rates are introduced into the
macroeconomic concept of interest rate rules. The study implies that from the theoretical
perspective term structure effects are an important extension of interest rate rules. From an
empirical perspective it shows that including term structure effects in interest rate reaction
functions improves our understanding of the interest rate setting of the Deutsche Bundesbank
and the European Central Bank.
