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The Information Content of the Federal Funds Rate: Is It Unique?

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  • Garfinkel, Michelle R
  • Thornton, Daniel L

Abstract

This paper investigates the information content of the federal funds rate relative to other market interest rates. The empirical results indicate that the federal funds rate is not informationally superior to the overnight repurchase rate or the three-month T-bill rate. Unanticipated changes in monetary policy do not systematically move the funds rate away from its long-run equilibrium relationship with other short-term interest rates. These results support the efficient-market view that the federal funds rate should not contain more information, including that about monetary policy, than other interest rates. Copyright 1995 by Ohio State University Press.

Suggested Citation

  • Garfinkel, Michelle R & Thornton, Daniel L, 1995. "The Information Content of the Federal Funds Rate: Is It Unique?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 838-847, August.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:3:p:838-47
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    Cited by:

    1. Sarno, Lucio & Thornton, Daniel L., 2003. "The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1079-1110, June.
    2. Thomas B. King, 2003. "Discipline and liquidity in the market for federal funds," Supervisory Policy Analysis Working Papers 2003-02, Federal Reserve Bank of St. Louis.
    3. O. David Gulley & Jahangir Sultan, 2003. "The link between monetary policy and stock and bond markets: evidence from the federal funds futures contract," Applied Financial Economics, Taylor & Francis Journals, vol. 13(3), pages 199-209.
    4. Marco Lippi & Daniel L. Thornton, 2004. "A dynamic factor analysis of the response of U. S. interest rates to news," Working Papers 2004-013, Federal Reserve Bank of St. Louis.
    5. Lucio Sarno & Daniel L. Thornton, 2004. "The efficient market hypothesis and identification in structural VARs," Review, Federal Reserve Bank of St. Louis, vol. 86(Jan), pages 49-60.
    6. Choi, Jae-Young & Ratti, Ronald A., 2000. "The Predictive Power of Alternative Indicators of Monetary Policy," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 581-610, October.
    7. Daniel L. Thornton, 1996. "The information content of discount rate announcements: what's behind the announcement effect?," Working Papers 1994-032, Federal Reserve Bank of St. Louis.
    8. Lee, Jim, 2002. "Federal funds rate target changes and interest rate volatility," Journal of Economics and Business, Elsevier, vol. 54(2), pages 159-191.
    9. Daniel L. Thornton, 1996. "Identifying the liquidity effect: the case of nonborrowed reserves," Working Papers 1996-002, Federal Reserve Bank of St. Louis.
    10. Kaketsis, Asimakis & Sarantis, Nicholas, 2006. "The effects of monetary policy changes on market interest rates in Greece: An event study approach," International Review of Economics & Finance, Elsevier, vol. 15(4), pages 487-504.
    11. VanHoose, David D. & Humphrey, David B., 2001. "Sweep accounts, reserve management, and interest rate volatility1," Journal of Economics and Business, Elsevier, vol. 53(4), pages 387-404.
    12. Lin-Yee Hin & Nikolai Dokuchaev, 2016. "Short Rate Forecasting Based On The Inference From The Cir Model For Multiple Yield Curve Dynamics," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-33, March.
    13. Bilan, Olena, 2005. "In search of the liquidity effect in Ukraine," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 500-516, September.

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