UNSPECIFIED (2003) The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation. JOURNAL OF BANKING & FINANCE, 27 (6). pp. 1079-1110. ISSN 0378-4266

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Abstract

This article examines the dynamic relationship between two key US money market interest rates-the federal funds rate (FF) and the 3-month Treasury bill rate. Using daily data over the period from 1974 to 1999, we find a long-run relationship between these two rates that is remarkably stable across monetary policy regimes of interest rate and monetary aggregate targeting. Employing a nonlinear asymmetric vector equilibrium correction model, which is novel in this context, we find that most of the adjustment toward the long-run equilibrium occurs through the FF. In turn, there is strong evidence for the existence of significant asymmetries and nonlinearities in interest rate dynamics that have implications for the conventional view of interest rate behavior. (C) 2003 Elsevier Science B.V. All rights reserved.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	JOURNAL OF BANKING & FINANCE
Publisher:	ELSEVIER SCIENCE BV
ISSN:	0378-4266
Date:	June 2003
Volume:	27
Number:	6
Number of Pages:	32
Page Range:	pp. 1079-1110
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/9712

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