The fed controls only one of the two interest rates in the U.S. economy
- Martín Manjón, Ricardo
- Treadway, Arthur B.
ISSN: 2341-2356
Year of publication: 1997
Issue: 16
Pages: 1-30
Type: Working paper
More publications in: Documentos de Trabajo (ICAE)
Abstract
Detailed analyses of a wide variety of monthly U.S. interest rates series for 1985-1995 are summarized. Short tenn rates (of term two years or less) are seen to operate in bivariate CI(1,1) cointegration relationships with the Fed' s Federal Funds Rate Target (Rº), though rates of longer term than two years do noto The latler operate in trivariate CI(1,1) cointegration relationships with Rº and a single longer term rate. Thus there are two and only two nonstationruy common factors in the set of interest, one identified with both short term rates and monetary policy, the other not. (JEL C22, C32. E43. E52).