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What's Unique About the Federal Funds Rate? Evidence from a Spectral Perspective

  • Lucio Sarno
  • Daniel L. Thornton
  • Yi Wen

This paper compares the behaviour of the effective federal funds rate to 10 US interest rates with maturities ranging from overnight to 10 years. Using spectral estimation methods, we identified idiosyncratic shocks to the funds rate and provided evidence on their impact on other rates at various frequencies. Our results suggest that, while all of the interest rates examined have common shocks at low frequencies, the federal funds rate contains some unique information at high frequency, although this information appears to be relevant only at the short end of the term structure. In turn, these results are open to various alternative interpretations. Copyright Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2007.

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 69 (2007)
Issue (Month): 2 (04)
Pages: 293-319

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Handle: RePEc:bla:obuest:v:69:y:2007:i:2:p:293-319
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