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Lookup NU author(s): Professor Robert Sollis
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This paper presents econometric evidence on whether the founding of the Federal Reserve in 1914 caused a structural change from level-stationarity to difference-stationarity in U.S. and U.K. short-term nominal interest rates. We develop new econometric tests that allow for parameter transitions to test for a break of this kind and undertake a grid search analysis of dates and speeds for the change. We find that U.S. nominal interest rates most likely evolved rapidly to difference-stationarity in June 1917. For the U.K. we fail to reject the null that U.K. interest rate series follow a difference stationary process over the entire period 1890-1934. Our analysis differs from previous research on this topic in that we take care to explore statistical uncertainty around parameter estimates, and incorporate higher order dynamics into our econometric analysis.
Author(s): Newbold P, Leybourne SJ, Sollis R, Wohar ME
Publication type: Article
Publication status: Published
Journal: Working Paper Trinity College Dublin
Year: 2001
Pages: 1-20
Publisher: Trinity College Dublin
URL: http://www.tcd.ie/Economics/TEP/2001_papers/TEPNo1RS21.pdf
