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Does the Fed Control Interest Rates?

Eugene F. Fama

University of Chicago - Finance

June 29, 2013

The Review of Asset Pricing Studies, Forthcoming
Chicago Booth Research Paper No. 12-23
Fama-Miller Working Paper

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.

Number of Pages in PDF File: 31

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

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Date posted: August 5, 2012 ; Last revised: July 2, 2013

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

Contact Information

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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