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Does the Fed Control Interest Rates?

Does the Fed Control Interest Rates? To what extent does TF, the target Federal funds rate set by the Fed, influence other rates? There is lots of variation in rates unrelated to TF, and any effects of TF on rates dissipate quickly for longer maturities. For short rates, all the tests have interpretations in terms of: (i) a Fed that has the power to control rates and uses it, and (ii) a Fed that has little power over rates or chooses not to exercise its power. In the end, there is no conclusive evidence (here or elsewhere) on the role of the Fed versus market forces in the long-term path of interest rates. (JEL E43, E58, G12) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Asset Pricing Studies Oxford University Press

Does the Fed Control Interest Rates?

Fama, Eugene F.
The Review of Asset Pricing Studies , Volume 3 (2) – Dec 2, 2013
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Publisher
Oxford University Press
Copyright
© The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oup.com
ISSN
2045-9920
eISSN
2045-9939
DOI
10.1093/rapstu/rat007
Publisher site
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Abstract

To what extent does TF, the target Federal funds rate set by the Fed, influence other rates? There is lots of variation in rates unrelated to TF, and any effects of TF on rates dissipate quickly for longer maturities. For short rates, all the tests have interpretations in terms of: (i) a Fed that has the power to control rates and uses it, and (ii) a Fed that has little power over rates or chooses not to exercise its power. In the end, there is no conclusive evidence (here or elsewhere) on the role of the Fed versus market forces in the long-term path of interest rates. (JEL E43, E58, G12)

Journal

The Review of Asset Pricing Studies – Oxford University Press

Published: Dec 2, 2013

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