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Frédérique Bec and Charbel Bassil
''Federal Funds Rate Stationarity: New Evidence''
( 2009, Vol. 29 No.2 )
This paper investigates the stationarity of the Federal Funds Rate. It contributes to the existing empirical literature in two ways. First, it explores both the presence of unit root and structural changes in the federal funds rate monthly data, by allowing for interaction between these two assumptions as suggested by the recent work of Lee and Strazicich. The second contribution consists in testing formally for the number of breaks. Using monthly data from January 1960 to April 2008, we find strong evidence in favor of a stationary process with two breaks. The two breaks identified correspond respectively to the first oil shock and to the change in the Fed operating procedure in the early eighties.
JEL: C1 - Econometric and Statistical Methods: General
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : Dec 12 2008 Manuscript Accepted : May 05 2009

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