We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
AN EMPIRICAL NOTE ON THE TERM STRUCTURE AND INTEREST RATE STABILIZATION POLICIES.
- Authors
Kugler, Peter
- Abstract
This article examines the term structure of interest rates at the short end of maturity spectrum through the interest rate stabilization. The expectations theory of the term structure of interest rates supplemented by the rational expectations and time-invariant risk premium assumption implies that the spread between the long and the short rate has in general predictive power for the short rate. But when the commitment of the U.S. Federal Reserve to stabilize interest rates resulted in random walk behavior of the short rate, the expectations theory is rejected. Under these circumstances, expected future short rates are equal to the actual short rate and variations of the spread are only brought about by changes in the risk premium. The term structure of Swiss, German and the U.S. interest rates is analyzed to further subject the short-term interest rate stabilization explanation to an empirical tests. It is found that spread has predictive power for short rate changes in the German and Swiss cases; whereas this is not true for the United States in both subperiods. States. Thus, the empirical analysis presents additional evidence in favor of the argument that the spread had substantial predictive power for changes in the short rate in the period before the founding of the Federal Reserve.
- Subjects
UNITED States; SWITZERLAND; GERMANY; INTEREST rates; RATIONAL expectations (Economic theory); INTEREST rate futures; SPREAD (Finance)
- Publication
Quarterly Journal of Economics, 1988, Vol 103, Issue 4, p789
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1886075