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Does the Fed Control Interest Rates?

The Review of Asset Pricing Studies, Forthcoming

Chicago Booth Research Paper No. 12-23

Fama-Miller Working Paper

31 Pages Posted: 5 Aug 2012 Last revised: 2 Jul 2013

Eugene F. Fama

University of Chicago - Finance

Date Written: June 29, 2013

Abstract

To what extent does TF, the target Federal funds rate set by the Fed, influence other rates? There is lots of variation in rates unrelated to TF, and any effects of TF on rates dissipate quickly for longer maturities. For short rates, all the tests have interpretations in terms of: (i) a Fed that has the power to control rates and uses it, and (ii) a Fed that has little power over rates or chooses not to exercise its power. In the end, there is no conclusive evidence (here or elsewhere) on the role of the Fed versus market forces in the long-term path of interest rates.

JEL Classification: E20, E42, E43, E44, E52, E58, G12, G18

Suggested Citation

Fama, Eugene F., Does the Fed Control Interest Rates? (June 29, 2013). The Review of Asset Pricing Studies, Forthcoming; Chicago Booth Research Paper No. 12-23; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2124039 or http://dx.doi.org/10.2139/ssrn.2124039

Eugene F. Fama (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)

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