The Effect of Money Shocks on Interest Rates in the Presence of Conditional Heteroskedasticity

Kevin Grier and Mark J Perry

Journal of Finance, 1993, vol. 48, issue 4, 1445-55

Abstract: Most current empirical work finds no evidence that money shocks lower interest rates. The authors show that these nonresults are mainly due to a failure to model the conditional heteroskedasticity of interest rates. Autoregressive conditional heteroskedasiticity (ARCH) models find a significant liquidity effect where ordinary least squares (OLS) models do not. The existence of a liquidity effect is found using different models and sample periods when ARCH models are used in estimation but never when OLS is employed. Copyright 1993 by American Finance Association.

Date: 1993
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