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The change in the CD rate--target federal funds rate linkage during the financial crisis

  • Bob J. Barnes
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    This study examines the target federal funds rate-Certificate of Deposit (CD) rate link over two time periods. The first period is 16 May 2000 to 31 July 2007 and the second is 1 August 2007 to 31 July 2009. August 2007 begins the initial stages of the financial crisis. A time-series analysis compares the two time periods. The results reveal a breakdown in the typical target--CD rate linkage in August 2007. For the 2-year period after August 2007 banks remained resilient to lower CD rates. This resiliency confirms the noted tightening of credit and bank uncertainty. During the 2-year period banks maintained firm CD rates as a way to attract funds in a period of growing uncertainty even with the target and other short-term rates falling.

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    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 19 (2012)
    Issue (Month): 12 (August)
    Pages: 1207-1211

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    Handle: RePEc:taf:apeclt:v:19:y:2012:i:12:p:1207-1211
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