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Interest Rate Targeting and the Dynamics of Short-Term Rates

Balduzzi, Pierluigi, et al
Authors registered in the RePEc Author Service: Pierluigi Balduzzi

Journal of Money, Credit and Banking, 1998, vol. 30, issue 1, 26-50

Abstract: A feature of U.S. monetary policy has been active targeting of overnight fed funds rates. The authors show that, during a period of tight targeting (1989-96), term fed funds spreads from the target displayed pronounced volatility and persistence, which increase with the maturity of the loan. They show that the increase in persistence is consistent with a model of infrequent, but predictable, revisions of the target. In the authors' model, the (autoco-)variance of the spreads of term fed funds rates from the target increases with the maturity because longer-term rates reflect persistent expectations of the next target change. Coauthors are Giuseppe Bertola, Silverio Foresi, and Leora Klapper.

Date: 1998
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Handle: RePEc:mcb:jmoncb:v:30:y:1998:i:1:p:26-50