Why Were Changes in the Federal Funds Rate Smaller in the 1990s?

Arabinda Basistha () and Richard Startz

No UWEC-2002-02, Working Papers from University of Washington, Department of Economics

Abstract: In this paper, we identify two major changes in the dynamics of the federal funds rate in the 1990s. We model the desired rate in a two-regime setting, one when the Fed makes no change and the other when the Fed is moving the desired rate to a new level. We find that the 1990s saw longer duration in the no-change regime as well as smaller changes in the other regime. We show the smaller changes were neither due to a less aggressive Fed nor due to lower volatility of the fundamentals. In fact, the Fed responded more aggressively to changes in fundamentals in the 1990s. The results also suggest that the Fed became more forward-looking in the last decade.

Date: 2002-01
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Forthcoming in Journal of Applied Econometrics

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Related works:
Journal Article: Why were changes in the federal funds rate smaller in the 1990s? (2004)
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