Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism

48 Pages Posted: 23 Apr 2004 Last revised: 6 Jul 2010

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1982

Abstract

The evidence presented in this paper leads to three conclusions about possible effects on the U.S. long-term capital. raising mechanism due to the sharp increase in interest rate volatility that has followed the Federal Reserve System's adoption of new monetary policy procedures in 1979. First, the increased volatility has probably led nonfinancial corporations to finance less of their external funds requirements at long term than they would other- wise have done. Second, the increased volatility has probably led underwriters of high grade corporate bonds to increase the spread of a typical new issue's yield over the prevailing market yield on comparable bonds already outstanding. Third, there is little firm basis (reported here, anyway) to conclude that the increased volatility in particular has affected investors' portfolio behavior in the bond market.

Suggested Citation

Friedman, Benjamin M., Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism (June 1982). NBER Working Paper No. w0917. Available at SSRN: https://ssrn.com/abstract=299794

Benjamin M. Friedman (Contact Author)

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