Discrete Policy Changes and Empirical Models of the Federal Funds Rate (ICPSR 1310)
Version Date: Mar 15, 2005 View help for published
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Michael J. Dueker, Federal Reserve Bank of St. Louis;
Robert H. Rasche, Federal Reserve Bank of St. Louis
https://doi.org/10.3886/ICPSR01310.v1
Version V1
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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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(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 Release Date View help for Original Release Date
2005-03-15
Version History View help for Version History
- 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
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These data are flagged as replication datasets and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.
The public-use data files in this collection are available for access by the general public. Access does not require affiliation with an ICPSR member institution.