This article examines the dynamic relationship between two key U.S. money market interest rates - the federal funds rate and the 3-month Treasury bill rate. Using daily data over the period 1974 to 1999, we find a long-run relationship between these two rates that is remarkably stable across...

This paper puts the issue of monetary policy transparency into a broad economic perspective. In so doing, it narrows the focus from that which frequently appears in this literature. The analysis is predicated on the assertion that the sole economic argument for transparency is policy...

In February 2005, former Chairman Alan Greenspan referred to the decline in long-term rates in the wake of the Fed increasing the target for the federal funds rate by 150 basis points as a “conundrum.” Greenspan’s remarks generated considerable interest and research. I show that the...

As part of the Fed's daily operating procedure, the Federal Reserve Bank of New York, the Board of Governors, and the Treasury make a forecast of that day's Treasury balance at the Fed. These forecasts are an integral part of the Fed's daily operating procedure. Errors in these forecasts can...

This paper investigates the hypothesis suggested by Cook and Hahn (1988) that the T-bill rates respond to the announcement of discount rate changes because the market takes discount rate changes to be a signal that the Fed has changed its target for the federal funds rate. Re-Interpreting Cook...

An unresolved puzzle in the empirical foreign exchange literature is that tests of forward rate unbiasedness using the forward rate and forward premium equations yield markedly different conclusions about the unbiasedness of the forward exchange rate. This puzzle is resolved by showing that...

This paper investigates the source of predictability of bond risk premia by means of long-term forward interest rates. We show that the predictive ability of forward rates could be due to the high serial correlation and cross-correlation of bond prices. We show that the predictive ability of...

In February 2005 Federal Reserve Chairman Alan Greenspan noticed that the 10-year Treasury yields failed to increase despite a 150-basis-point increase in the federal funds rate as a “conundrum.” This paper shows that the connection between the 10-year yield and the federal funds rate was...

With its interest rate instrument at the zero lower bound, the Federal Open Market Committee has turned to unconventional methods to stimulate economic growth and increase employment. Prominent among these is quantitative easing (QE)—the purchase of a large quantity of longer-term debt....

The consensus in monetary policy circles that the Fed’s large-scale asset purchases, known as quantitative easing (QE), have significantly reduced long-term yields is due in part to event studies, which show that long-term yields decline on QE announcement days. However, little attention has...