The start of interest rate smoothing in the US: is it a monetary or fiscal story?

Tony Caporale and Kyongwook Choi

Applied Economics, 2009, vol. 41, issue 11, 1361-1365

Abstract: This article revisits the key issue raised by researchers who have empirically investigated the behaviour of short term US interest rates during the period 1890-1933. The seminal article of Mankiw, Miron and Weil (1987) argues that changes in the behaviour of nominal interest rates is best explained as a monetary regime shift that occurred with the founding of the Federal reserve in 1914. This explanation is rejected by Newbold, Lehybourne, Sollis and Wohar (2001) who show that fiscal and regulatory changes (driven by the needs of World War1 financing) best explain the changing behaviour of interest rates that they identify as beginning in mid-1917. We find, using three different statistical procedures that a structural break in the second moment of interest rates occurred in early 1915. This supports the monetary regime shift argument of MMW by illustrating that the interest rate smoothing policies of the FED can be observed as a variance break in short term interest rates.

Date: 2009
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840601019380 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:41:y:2009:i:11:p:1361-1365

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840601019380

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().