IDEAS home Printed from https://ideas.repec.org/p/bcb/wpaper/206.html
   My bibliography  Save this paper

Fluctuation Dynamics in US Interest Rates and the Role of Monetary Policy

Author

Listed:
  • Daniel Oliveira Cajueiro
  • Benjamin M. Tabak

Abstract

This paper presents empirical evidence suggesting that the degree of long-range dependence in interest rates depends on the conduct of monetary policy. We study the term structure of interest rates for the US and find evidence that global Hurst exponents change dramatically according to Chairman Tenure in the Federal Reserve Board and also with changes in the conduct of monetary policy. In the period from 1960's until the monetarist experiment in the beginning of the 1980's interest rates had a significant long-range dependence behavior. However, in the recent period, in the second part of the Volcker tenure and in the Greenspan tenure, interest rates do not present long-range dependence behavior. These empirical findings cast some light on the origins of long-range dependence behavior in financial assets.

Suggested Citation

  • Daniel Oliveira Cajueiro & Benjamin M. Tabak, 2010. "Fluctuation Dynamics in US Interest Rates and the Role of Monetary Policy," Working Papers Series 206, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:206
    as

    Download full text from publisher

    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps206.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pilar Grau-Carles, 2005. "Tests of Long Memory: A Bootstrap Approach," Computational Economics, Springer;Society for Computational Economics, vol. 25(1), pages 103-113, February.
    2. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(1), pages 147-180.
    3. Duffy, John & Engle-Warnick, Jim, 2006. "Multiple Regimes in U.S. Monetary Policy? A Nonparametric Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1363-1377, August.
    4. David K. Backus & Stanley E. Zin, 1993. "Long-memory inflation uncertainty: evidence from the term structure of interest rates," Proceedings, Federal Reserve Bank of Cleveland, pages 681-708.
    5. Jean Boivin & Marc P. Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 445-462, August.
    6. Lee, Dongin & Schmidt, Peter, 1996. "On the power of the KPSS test of stationarity against fractionally-integrated alternatives," Journal of Econometrics, Elsevier, vol. 73(1), pages 285-302, July.
    7. Cajueiro, Daniel O. & Tabak, Benjamin M., 2005. "The rescaled variance statistic and the determination of the Hurst exponent," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 70(3), pages 172-179.
    8. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
    9. Matteo, T. Di & Aste, T. & Dacorogna, Michel M., 2005. "Long-term memories of developed and emerging markets: Using the scaling analysis to characterize their stage of development," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 827-851, April.
    10. Kozicki, Sharon & Tinsley, P.A., 2005. "What do you expect? Imperfect policy credibility and tests of the expectations hypothesis," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 421-447, March.
    11. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    12. Grau-Carles, Pilar, 2006. "Bootstrap testing for detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 360(1), pages 89-98.
    13. Boivin, Jean, 2006. "Has U.S. Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1149-1173, August.
    14. Giraitis, Liudas & Kokoszka, Piotr & Leipus, Remigijus & Teyssiere, Gilles, 2003. "Rescaled variance and related tests for long memory in volatility and levels," Journal of Econometrics, Elsevier, vol. 112(2), pages 265-294, February.
    15. Tsay, Wen-Jen, 2000. "Long memory story of the real interest rate," Economics Letters, Elsevier, vol. 67(3), pages 325-330, June.
    16. Tabak, Benjamin M. & Cajueiro, Daniel O., 2005. "The long-range dependence behavior of the term structure of interest rates in Japan," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 350(2), pages 418-426.
    17. Christina D. Romer & David H. Romer, 2004. "Choosing the Federal Reserve Chair: Lessons from History," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 129-162, Winter.
    18. Barkoulas, John T. & Baum, Christopher F., 1998. "Fractional dynamics in Japanese financial time series," Pacific-Basin Finance Journal, Elsevier, vol. 6(1-2), pages 115-124, May.
    19. Dai, Qiang & Singleton, Kenneth J., 2002. "Expectation puzzles, time-varying risk premia, and affine models of the term structure," Journal of Financial Economics, Elsevier, vol. 63(3), pages 415-441, March.
    20. GIRAITIS, Liudas & KOKOSZKA, Piotr & LEIPUS, Remigijus & TEYSSIÈRE, Gilles, 2003. "Rescaled variance and related tests for long memory in volatility and levels," LIDAM Reprints CORE 1594, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lisana B. Martinez & M. Belén Guercio & Aurelio Fernandez Bariviera & Antonio Terceño, 2018. "The impact of the financial crisis on the long-range memory of European corporate bond and stock markets," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(1), pages 1-15, February.
    2. Sensoy, A., 2013. "Effects of monetary policy on the long memory in interest rates: Evidence from an emerging market," Chaos, Solitons & Fractals, Elsevier, vol. 57(C), pages 85-88.
    3. Alvarez-Ramirez, J. & Rodriguez, E. & Espinosa-Paredes, G., 2012. "A partisan effect in the efficiency of the US stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(20), pages 4923-4932.
    4. Bariviera, Aurelio F. & Basgall, María José & Hasperué, Waldo & Naiouf, Marcelo, 2017. "Some stylized facts of the Bitcoin market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 484(C), pages 82-90.
    5. Bariviera, Aurelio F., 2017. "The inefficiency of Bitcoin revisited: A dynamic approach," Economics Letters, Elsevier, vol. 161(C), pages 1-4.
    6. Sensoy, Ahmet & Hacihasanoglu, Erk, 2014. "Time-varying long range dependence in energy futures markets," Energy Economics, Elsevier, vol. 46(C), pages 318-327.
    7. A. Sensoy & Benjamin M. Tabak, 2013. "How much random does European Union walk? A time-varying long memory analysis," Working Papers Series 342, Central Bank of Brazil, Research Department.
    8. Sensoy, Ahmet & Tabak, Benjamin M., 2015. "Time-varying long term memory in the European Union stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 436(C), pages 147-158.
    9. Benjamin Rainer Auer, 2018. "Are standard asset pricing factors long-range dependent?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 66-88, January.
    10. Sensoy, A., 2013. "Time-varying long range dependence in market returns of FEAS members," Chaos, Solitons & Fractals, Elsevier, vol. 53(C), pages 39-45.
    11. Arouxet, M. Belén & Bariviera, Aurelio F. & Pastor, Verónica E. & Vampa, Victoria, 2022. "Covid-19 impact on cryptocurrencies: Evidence from a wavelet-based Hurst exponent," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 596(C).
    12. Soon, Siew-Voon & Baharumshah, Ahmad Zubaidi & Mohamad Shariff, Nurul Sima, 2017. "The persistence in real interest rates: Does it solve the intertemporal consumption behavior puzzle?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 36-51.
    13. Sensoy, Ahmet & Tabak, Benjamin M., 2016. "Dynamic efficiency of stock markets and exchange rates," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 353-371.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cajueiro, Daniel O. & Tabak, Benjamin M., 2007. "Time-varying long-range dependence in US interest rates," Chaos, Solitons & Fractals, Elsevier, vol. 34(2), pages 360-367.
    2. Cajueiro, Daniel O. & Tabak, Benjamin M., 2009. "Testing for long-range dependence in the Brazilian term structure of interest rates," Chaos, Solitons & Fractals, Elsevier, vol. 40(4), pages 1559-1573.
    3. Cajueiro, Daniel O. & Tabak, Benjamin M., 2008. "Testing for long-range dependence in world stock markets," Chaos, Solitons & Fractals, Elsevier, vol. 37(3), pages 918-927.
    4. Souza, Sergio R. & Tabak, Benjamin M. & Cajueiro, Daniel O., 2008. "Long memory testing for Fed Funds Futures’ contracts," Chaos, Solitons & Fractals, Elsevier, vol. 37(1), pages 180-186.
    5. Luis Miguel Doncel & Pilar Grau-Carles & Jorge Sainz, 2009. "On the long-term behavior of mutual fund returns," Quantitative Finance, Taylor & Francis Journals, vol. 9(6), pages 653-660.
    6. Best, Gabriela & Hur, Joonyoung, 2019. "Bad luck, bad policy, and learning? A Markov-switching approach to understanding postwar U.S. macroeconomic dynamics," European Economic Review, Elsevier, vol. 119(C), pages 55-78.
    7. Cajueiro, Daniel O. & Tabak, Benjamin M., 2007. "Long-range dependence and multifractality in the term structure of LIBOR interest rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 373(C), pages 603-614.
    8. Assaf, A., 2006. "Dependence and mean reversion in stock prices: The case of the MENA region," Research in International Business and Finance, Elsevier, vol. 20(3), pages 286-304, September.
    9. Ferman, Marcelo, 2011. "Switching monetary policy regimes and the nominal term structure," LSE Research Online Documents on Economics 119070, London School of Economics and Political Science, LSE Library.
    10. Traum, Nora & Yang, Shu-Chun S., 2011. "Monetary and fiscal policy interactions in the post-war U.S," European Economic Review, Elsevier, vol. 55(1), pages 140-164, January.
    11. Lakdawala, Aeimit, 2016. "Changes in Federal Reserve preferences," Journal of Economic Dynamics and Control, Elsevier, vol. 70(C), pages 124-143.
    12. Guglielmo Caporale & Luis Gil-Alana, 2013. "Long memory in US real output per capita," Empirical Economics, Springer, vol. 44(2), pages 591-611, April.
    13. A. Assaf, 2007. "Fractional integration in the equity markets of MENA region," Applied Financial Economics, Taylor & Francis Journals, vol. 17(9), pages 709-723.
    14. Kristoufek, Ladislav, 2014. "Leverage effect in energy futures," Energy Economics, Elsevier, vol. 45(C), pages 1-9.
    15. Kostas Mavromatis, 2018. "U.S. Monetary Regimes and Optimal Monetary Policy in the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1441-1478, October.
    16. Li, Wen & Yu, Cindy & Carriquiry, Alicia & Kliemann, Wolfgang, 2011. "The asymptotic behavior of the R/S statistic for fractional Brownian motion," Statistics & Probability Letters, Elsevier, vol. 81(1), pages 83-91, January.
    17. Ata Assaf, 2006. "Canadian REITs and Stock Prices: Fractional Cointegration and Long Memory," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(03), pages 441-462.
    18. Pancrazi, Roberto & Vukotic, Marija, 2012. "Technology Persistence and Monetary Policy," Economic Research Papers 270536, University of Warwick - Department of Economics.
    19. Belongia, Michael T. & Ireland, Peter N., 2016. "The evolution of U.S. monetary policy: 2000–2007," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 78-93.
    20. Kostas Mavromatis, 2018. "U.S. Monetary Regimes and Optimal Monetary Policy in the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1441-1478, October.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rodrigo Barbone Gonzalez (email available below). General contact details of provider: https://www.bcb.gov.br/en .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.