Understanding the Importance of the Timing and the Size of the Variations the Fed's Target Rate

C.E.S.-A.C. Working Paper No. 2006-01

22 Pages Posted: 20 Mar 2006 Last revised: 12 Sep 2008

See all articles by Dominique Guegan

Dominique Guegan

Ecole Normale Superieure de Cachan

Florian Ielpo

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

Date Written: December 5, 2006

Abstract

This article intends to show that the variations of the target rate level and the duration between two variations of the target rate do not necessarily react to the same factors. For this purpose, we use a model derived from Engle and Russell (2005): we propose to model differently the duration between two changes in the target rate and the target rate variations. Extracting the factors driving monetary policy using an enhanced principal component analysis - namely the partial least square algorithm - we show that durations and the variations of the target rate time series react differently to each of these factors.

Keywords: Taylor rule, duration models, probit models, Central Bank expectations, Factor based methods

JEL Classification: C32, E58

Suggested Citation

Guegan, Dominique and Ielpo, Florian, Understanding the Importance of the Timing and the Size of the Variations the Fed's Target Rate (December 5, 2006). Available at SSRN: https://ssrn.com/abstract=890364 or http://dx.doi.org/10.2139/ssrn.890364

Dominique Guegan

Ecole Normale Superieure de Cachan ( email )

61 avenue du President Wilson
Cachan
France

Florian Ielpo (Contact Author)

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

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Unigestion ( email )

8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland

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