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US and UK interest rates 1890-1934 : new evidence on structural breaks.

Newbold, P. and Leybourne, S. J. and Sollis, R. and Wohar, M. E. (2001) 'US and UK interest rates 1890-1934 : new evidence on structural breaks.', Journal of money, credit and banking., 33 (2 Part 1). pp. 235-250.

Abstract

This paper presents econometric evidence on whether the founding of the Federal Reserve in 1914 caused a structural change from level stationarity to difference stationarity in U.S. and U.K. short-term nominal interest rates. We develop new econometric tests that allow for parameter transitions to test for a break of this kind and undertake a grid search analysis of dates and speeds for the change. We find that U.S. nominal interest rates most likely evolved rapidly to difference stationarity in June 1917. For the United Kingdom we fail to reject the null that U.K. interest rate series follow a difference stationary process over the entire period 1890-1934. Our analysis differs from previous research on this topic in that we take care to explore statistical uncertainty around parameter estimates, and incorporate higher-order dynamics into our econometric analysis.

Item Type:Article
Keywords:Federal-reserve, Regime, Expectations, Adjustment.
Full text:PDF - Published Version (634Kb)
Status:Peer-reviewed
Publisher Web site:http://webmail.econ.ohio-state.edu/john/Volume33No2Pt1.php
Publisher statement:Copyright of Journal of Money, Credit & Banking is the property of Ohio State University Press and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts).
Record Created:21 Aug 2008
Last Modified:23 Aug 2011 16:22

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