Interest Rate Targeting and the Dynamics of Short-Term Rates
AbstractA feature of U.S. monetary policy has been active targeting of overnight fed funds rates. The authors show that, during a period of tight targeting (1989-96), term fed funds spreads from the target displayed pronounced volatility and persistence, which increase with the maturity of the loan. They show that the increase in persistence is consistent with a model of infrequent, but predictable, revisions of the target. In the authors' model, the (autoco-)variance of the spreads of term fed funds rates from the target increases with the maturity because longer-term rates reflect persistent expectations of the next target change. Coauthors are Giuseppe Bertola, Silverio Foresi, and Leora Klapper.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 30 (1998)
Issue (Month): 1 (February)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
Other versions of this item:
- Pierluigi Balduzzi & Giuseppe Bertola & Silverio Foresi & Leora Klapper, 1997. "Interest Rate Targeting and the Dynamics of Short-Term Rates," NBER Working Papers 5944, National Bureau of Economic Research, Inc.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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