Understanding the Importance of the Duration and Size of the Variations of Fed’s Target Rate

The IUP Journal of Monetary Economics, Vol. VII, Nos. 3 & 4, pp. 44-72, August & November 2009

Posted: 26 Aug 2009

See all articles by Florian Ielpo

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); Unigestion

Dominique Guegan

Université Paris I Panthéon-Sorbonne

Date Written: August 25, 2009

Abstract

This paper intends to show that the variations in the target rate level and the duration between two variations in the target rate do not necessarily react to the same factors. For this purpose, the paper uses a model derived from Engle and Russell (2005). It proposes to model differently the duration between two changes in the target rate and the target rate variations. Extracting the factors driving monetary policy using enhanced principal component analysis, namely the partial least square algorithm, the paper shows that durations and the variations in the target rate time series react differently to each factor.

Suggested Citation

Ielpo, Florian and Guegan, Dominique, Understanding the Importance of the Duration and Size of the Variations of Fed’s Target Rate (August 25, 2009). The IUP Journal of Monetary Economics, Vol. VII, Nos. 3 & 4, pp. 44-72, August & November 2009. Available at SSRN: https://ssrn.com/abstract=1461309

Florian Ielpo (Contact Author)

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
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Dominique Guegan

Université Paris I Panthéon-Sorbonne ( email )

106 avenue de lhopital
75634 Paris Cedex 13
Paris, IL
France

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