Persistence and cycles in the us federal funds rate

Guglielmo Maria Caporale and Luis Gil-Alana

International Review of Financial Analysis, 2017, vol. 52, issue C, 1-8

Abstract: This paper uses long-range dependence techniques to analyse two important features of the US Federal Funds effective rate, namely its persistence and its cyclical behaviour. It examines annual, monthly, bi-weekly and weekly data, from 1954 until 2017. Two models are considered. One is based on an I(d) specification with AR(2) disturbances and the other one on two fractional differencing structures, one at the zero and the other at a cyclical frequency. Thus, the two approaches differ in the way the cyclical component of the process is modelled. In both cases we obtain evidence of long memory and fractional integration with cycles repeating approximately every 8years. The in-sample goodness-of-fit analysis supports the second specification in the majority of cases. An out-of-sample forecasting experiment also suggests that the long-memory model with two fractional differencing parameters is the most adequate one, especially over long horizons.

Keywords: Federal Funds rate; Persistence; Cyclical behaviour; Fractional integration (search for similar items in EconPapers)
JEL-codes: C32 E43 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Persistence and Cycles in the US Federal Funds Rate (2012)
Working Paper: Persistence and Cycles in the US Federal Funds Rate (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:52:y:2017:i:c:p:1-8

DOI: 10.1016/j.irfa.2017.04.007

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