Decoupling between the Federal Funds Rate and Long-term Interest Rates: Decreasing Effectiveness of Monetary Policy in the US

Date

2012-10-01

Author

Cömert, Hasan

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Cömert investigates the relationship between overnight interest rates and the long-term rates in the US from 1983q1 to 2007q3. He presents evidence supporting the argument that there was a gradual decoupling between the Fed interest rate and long-term interest rates even before the recent crisis. In other words, the Fed was gradually losing its control over long-term interest rates. As opposed to many economists’ claims, the period after 2001 was a continuation of a process which has surfaced since the end of the 1980s. Both descriptive statistics and different econometric techniques robustly support the argument that the decoupling began way earlier than 2001. Furthermore, the purchase of the US assets by foreigners might have played some role in this process although the findings related to this are not very robust.

Subject Keywords

Central Banking, Federal Funds Rate, US Monetary Policy, Short-Term and Long Term Interest Rates and Decoupling

URI

https://hdl.handle.net/11511/73064
https://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_251-300/WP295.pdf

Journal

Political Economy Research Institute

Collections

Department of Economics, Article

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Citation Formats

H. Cömert, “Decoupling between the Federal Funds Rate and Long-term Interest Rates: Decreasing Effectiveness of Monetary Policy in the US,” Political Economy Research Institute, pp. 0–0, 2012, Accessed: 00, 2021. [Online]. Available: https://hdl.handle.net/11511/73064.