A note on the expectations hypothesis at the founding of the Fed

Clemens Kool and Daniel Thornton

No 2000-004, Working Papers from Federal Reserve Bank of St. Louis

Abstract: One of the most influential tests of the expectations hypothesis is Mankiw and Miron (1986), who found that the spread between the long-term and short-term rates provided predictive power for the short-term rate before the Fed's founding but not after. They suggested that the failure of the expectations hypothesis after the Fed's founding was due to the Fed's practice of smoothing short-term interest rates. We show that their finding that the expectations hypothesis fares better prior to the Fed's founding is due to the fact that the test they employ tends to generate results that are more favorable to the expectations hypothesis during periods when there is extreme volatility in the short-term rate. (Earlier version titled: The expectations theory and the founding of the Fed: another look at the evidence)

Keywords: Interest rates; Rational expectations (Economic theory); Federal Reserve System - History (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Banking and Finance, December 2004, 28(12), pp. 3055-68

Downloads: (external link)
http://research.stlouisfed.org/wp/more/2000-004 (application/pdf)
http://research.stlouisfed.org/wp/2000/2000-004.pdf

Related works:
Journal Article: A note on the expectations hypothesis at the founding of the Fed (2004)
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:fip:fedlwp:2000-004

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().