THE EQUILIBRIUM FED FUNDS RATE AND THE INDICATOR PROPERTIES OF TERM-STRUCTURE SPREADS

Authors
Citation
An. Bomfim, THE EQUILIBRIUM FED FUNDS RATE AND THE INDICATOR PROPERTIES OF TERM-STRUCTURE SPREADS, Economic inquiry, 35(4), 1997, pp. 830-846
Citations number
16
Categorie Soggetti
Economics
Journal title
ISSN journal
00952583
Volume
35
Issue
4
Year of publication
1997
Pages
830 - 846
Database
ISI
SICI code
0095-2583(1997)35:4<830:TEFFRA>2.0.ZU;2-I
Abstract
This paper introduces a model-based measure of the equilibrium federal funds rate and examines the indicator properties of the spread betwee n observed and equilibrium rates. The results are compared to those of existing studies, which implicitly use long-term interest rates to pr oxy the equilibrium funds rate. Granger-causality tests suggest that d ifferent measures of the term-structure spread are dominated by the fu nds-rate spread as a forecaster of a wide range of macroeconomic varia bles. These results are supported by variance-decomposition analysis. The paper also estimates simple VARs to discuss how the policy stance responds to macroeconomic shocks.