Interest rate uncertainty and the founding of the Federal Reserve

This article examines the impact of what is undoubtedly the most important monetary regime change in U.S. history: the founding of the Federal Reserve System. We find, using a (G)ARCH model, a significant reduction in interes t rate uncertainty following the founding of the Fed. Additionally, we show that the passage of the Aldrich-Vreeland Act in 1908, another significant change in policy, also led to a reduction in interest rate uncertainty. The se results are robust to alternative interest rare models, as well as to in corporating the impact of other events important to financial markets in ou r sample.