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The Changing Behavior Of The Term Structure Of Post-War U.S. Interest Rates And Changes In The Federal Reserve Chairman: Is There A Link?

  • María-José Gutiérrez

    (Universidad del País Vasco)

  • Jesús Vázquez

    (Universidad del País Vasco)

Using U.S. interest rate data covering the period 1950:1-1992:7, this paper tests the rational expectations model of the term structure of interest rates. We show evidence that the rational expectations model of the term structure is supported by the data during the seventies and a period lasting from the mid-eighties to the end of the sample. However, during the …fties, sixties and a period that covers most of the Volcker’s o¢ce term (from September 1979 to April 1986) the term structure model is rejected by the data. Moreover, we …nd evidence of regime changes in the short-term rate process and the term structure of interest rates. These regime switches roughly coincide with changes in the Federal Reserve chairman. The switches in monetary policy taking place when the chairmanship of the Federal Reserve changes therefore seem to play an important role in characterizing the term structure of interest rates.

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Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 01-03.

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Length: 24 pages
Date of creation: Jan 2001
Date of revision:
Handle: RePEc:aee:wpaper:0103
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  1. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
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  3. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
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  8. Antoncic, Madelyn, 1986. "High and Volatile Real Interest Rates: Where Does the Fed Fit In?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 18-27, February.
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  12. John Y. Campbell, 1995. "Some Lessons from the Yield Curve," Harvard Institute of Economic Research Working Papers 1713, Harvard - Institute of Economic Research.
  13. Hamilton, James D., 1988. "Rational-expectations econometric analysis of changes in regime : An investigation of the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 385-423.
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  16. Dominguez, Emilio & Novales, Alfonso, 2000. "Testing the expectations hypothesis in Eurodeposits," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 713-736, October.
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  18. Peek, Joe & Wilcox, James A, 1987. "Monetary Policy Regimes and the Reduced Form for Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(3), pages 273-91, August.
  19. Daniel L. Thornton, 1996. "Discount rate policies of five Federal Reserve Chairmen," Working Papers 1996-001, Federal Reserve Bank of St. Louis.
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