What's unique about the federal funds rate? evidence from a spectral perspective

A large empirical literature attempts to identify US monetary policy shocks using the effective federal funds rate. This paper compares the time series behavior of the effective federal funds rate to 10 US interest rates with maturities ranging form overnight to 10 years. Using a spectral estimation procedure that is particularly suitable and novel in the context, we identify idiosyncratic shocks to the federal funds rate and provide evidence on their impact on other US interest rates at various frequencies. Our results suggest that, while all of the interest rates examined have common shocks at low frequency, the federal funds rate contains some unique information at high frequency, although this information appears to be relevant only at the short end of the term structure of interest rates. In turn, these results are open to various alternative interpretations.