Title
The Start of Interest Rate Smoothing in the US: Is It a Monetary or Fiscal Story?
Document Type
Article
Publication Date
2009
Publication Source
Applied Economics
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.
Inclusive pages
1361-1365
ISBN/ISSN
0003-6846
Copyright
Copyright © 2009, Taylor & Francis
Publisher
Taylor & Francis
Volume
41
Peer Reviewed
yes
Issue
11
eCommons Citation
Caporale, Tony and Choi, Kyongwook, "The Start of Interest Rate Smoothing in the US: Is It a Monetary or Fiscal Story?" (2009). Economics and Finance Faculty Publications. 60.
https://ecommons.udayton.edu/eco_fac_pub/60
COinS
Comments
Permission documentation is on file.