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Regime changes and interest rate risk

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  • Caporale, Tony

Abstract

This paper employs the Bai and Perron (1998, 2003) structural break methodology to investigate important structural shifts in US interest rates using data from 1890.01 to 1933.12. I find evidence for two large structural shifts in my monthly sample. The second shift is found to start in September 1917. This supports the view of several studies which argue that US entry into World War 1 and subsequent wartime policies, rather than the founding of the Federal Reserve in 1914, caused a major change in the behavior of nominal interest rates.

Suggested Citation

  • Caporale, Tony, 2015. "Regime changes and interest rate risk," Economics Letters, Elsevier, vol. 136(C), pages 204-206.
    • Handle: RePEc:eee:ecolet:v:136:y:2015:i:c:p:204-206
    DOI: 10.1016/j.econlet.2015.08.015
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    References listed on IDEAS

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    4. Mankiw, N Gregory & Miron, Jeffrey A & Weil, David N, 1987. "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve," American Economic Review, American Economic Association, vol. 77(3), pages 358-374, June.
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    6. Fishe, Raymond P H, 1991. "The Federal Reserve Amendments of 1917: The Beginning of a Seasonal Note Issue Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 308-326, August.
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    More about this item

    Keywords

    Interest rate risk; Regime changes; Structural breaks;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets

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