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A Model of Target Changes and the Term Structure of Interest Rates / Pierluigi Balduzzi, Giuseppe Bertola, Silverio Foresi.
- Format:
- Book
- Author/Creator:
- Balduzzi, Pierluigi.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w4347.
- NBER working paper series no. w4347
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1993.
- Summary:
- We explore the effects of official targeting policy on the term-structure of nominal interest rates, adapting relevant insights from theoretical work on "peso problems" to account for realistic infrequency of target changes. Our analysis of daily U.S. interest rates and newly available historical targets provides an interpretation for persistent spreads between short-term money-market rates and overnight fed-funds targets, and for the poor performance of expectations-hypothesis tests: it is the policy-induced component of fed funds dynamics that appears to be erroneously anticipated by the market. Still, allowance for serial correlation in target changes makes it possible to extract from interest-rate data an expected-knoll series which is quite consistent with the assumptions of the model, indicating that some features of the interest-rate-targeting process are incorporated by market expectations.
- Notes:
- Print version record
- April 1993.
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