Tests of the Federal Funds Rate: A Classic Application of Garch-M

Posted: 29 Sep 2000

See all articles by Ken B. Cyree

Ken B. Cyree

University of Mississippi - School of Business Administration

Drew B. Winters

Texas Tech University

Abstract

We analyze Fed funds rate changes in GARCH-in-mean (GARCH-M) models and find: (a) daily rate change and variance patterns differ with the timing of the rate observation, but that all patterns are generally consistent with optimal reserve account management; (b) Fed funds daily and intraday variances exhibit trends and persistence; (c) daily variance effects differ when using marginal rates versus daily weighted average rates; and (d) conditional variances do not provide information about daily or intraday rate changes. In addition, our results provide support for the use of GARCH models for studies on other financial assets.

JEL Classification: G21, G28

Suggested Citation

Cyree, Ken B. and Winters, Drew B., Tests of the Federal Funds Rate: A Classic Application of Garch-M. Available at SSRN: https://ssrn.com/abstract=236037

Ken B. Cyree

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Drew B. Winters (Contact Author)

Texas Tech University ( email )

Finance Department
Rawls College of Business
Lubbock, TX 79409
United States
806-742-3350 (Phone)
806-742-3197 (Fax)

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