Working Paper: NBER ID: w2124
Authors: N. Gregory Mankiw; Jeffrey A. Miron; David A. Weil
Abstract: The founding of the Federal Reserve System in 1914 led to a substantial change in the behavior of nominal interest rates. We examine the timing of this change and the speed with which it was effected. We then use data on the term structure of interest rates to determine how expectations responded. Our results indicate that the change in policy regime was rapid and that individuals quickly understood the new environment they were facing.
Keywords: Federal Reserve; interest rates; expectations; policy regime
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Founding of the Federal Reserve (E58) | Change in stochastic process governing interest rates (E43) |
| Founding of the Federal Reserve (E58) | Behavior of nominal interest rates (E43) |
| Change in stochastic process governing interest rates (E43) | Adjustment of expectations among financial market participants (D84) |
| Adjustment of expectations among financial market participants (D84) | Change in long-short rate relationship (E43) |
| Founding of the Federal Reserve (E58) | Shift in stochastic process of short-term interest rates (E43) |