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Discrete Policy Changes and Empirical Models of the Federal Funds Rate (ICPSR 1310)
Principal Investigator(s): Dueker, Michael J., Federal Reserve Bank of St. Louis; Rasche, Robert H., Federal Reserve Bank of St. Louis
Empirical models of the federal funds rate almost uniformly use the quarterly or monthly average of the daily rates. One empirical question about the federal funds rate concerns the extent to which monetary policymakers smooth this interest rate. Under the hypothesis of rate smoothing, policymakers set the interest rate this period equal to a weighted average of the rate inherited from the previous quarter and the rate implied by current economic conditions, such as the Taylor rule rate. Perhaps surprisingly, however, little attention has been given to measuring the interest rate inherited from the previous quarter. Previous tests for interest rate smoothing have assumed that the quarterly or monthly average from the previous period is the inherited rate. The authors of this study, in contrast, suggest that the end-of-quarter level of the target federal funds rate is the inherited rate, and empirical tests support this proposition. The authors show that this alternative view of the rate inherited from the past affects empirical results concerning interest rate smoothing, even in relatively rich models that include regime switching.
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Dueker, Michael J., and Robert H. Rasche. Discrete Policy Changes and Empirical Models of the Federal Funds Rate. ICPSR01310-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2005-03-15. http://doi.org/10.3886/ICPSR01310.v1
Persistent URL: http://doi.org/10.3886/ICPSR01310.v1
This study was funded by:
- Federal Reserve Bank of St. Louis
Scope of Study
Geographic Coverage: United States
Data Collection Notes:
(1) The files submitted are 0411mdp.txt, program file, and 0411mdd.txt, the data file. (2) These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigators if further information is desired.
Original ICPSR Release: 2005-03-15
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