Term structure and interest rate stabilization policies in the Greenspan era

Anna Florio

Empirical Economics, 2020, vol. 59, issue 1, No 14, 345-355

Abstract: Abstract Previous studies attribute the failure of the expectations theory, using the 3–6-month Treasury bill spread, to the Federal Reserve’s commitment to stabilizing interest rates. We find that with the advent of Greenspan, this spread predicts future changes in the short rate in the USA. This success can be explained by interest rate smoothing and greater transparency by the Fed. By enhancing the management of market expectations and reducing uncertainty, the central bank improves interest rate predictability and gains credibility from the market, as lower term premia suggest.

Keywords: Monetary policy; Term structure; Federal Reserve; Expectation theory (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-019-01672-x

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