The Changing Behavior of the Term Structure of Interest Rates / N. Gregory Mankiw, Jeffrey A. Miron.

Format:

Book

Author/Creator:

Mankiw, N. Gregory.

Contributor:

National Bureau of Economic Research.

Miron, Jeffrey A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1669.

NBER working paper series no. w1669

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1985.

Summary:

We reexamine the expectations theory of the term structure using data at the short end of the maturity spectrum. We find that prior to the founding ofthe Federal Reserve System in 1915, the spread between long rates and short rates has substantial predictive power for the path of interest rates; after 1915, however, the spread contains much less predictive power. We then show that the short rate is approximately a random walk after the founding of the Fed but not before. This latter fact, coupled with even slight variation inthe term premium, can explain the observed change in 1915 in the performance of the expectations theory. We suggest that the random walk character of the short rate may be attributable to the Federal Reserve's commitment to stabilizing interest rates.

Notes:

Print version record

July 1985.