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

Newbold, P.; Leybourne, S.J.; Sollis, R.; Wohar, M.E.

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


Authors

P. Newbold

S.J. Leybourne

R. Sollis

M.E. Wohar



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.

Citation

Newbold, P., Leybourne, S., Sollis, R., & Wohar, M. (2001). US and UK interest rates 1890-1934: new evidence on structural breaks. Journal of Money, Credit and Banking, 33(2 Part 1), 235-250

Journal Article Type Article
Publication Date 2001-05
Deposit Date Aug 21, 2008
Publicly Available Date Aug 21, 2008
Journal Journal of Money, Credit and Banking
Print ISSN 0022-2879
Electronic ISSN 1538-4616
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 33
Issue 2 Part 1
Pages 235-250
Keywords Federal-reserve, Regime, Expectations, Adjustment.
Public URL https://durham-repository.worktribe.com/output/1600918
Publisher URL http://webmail.econ.ohio-state.edu/john/Volume33No2Pt1.php

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