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Interest Rate Targeting and the Dynamics of Short-Term Rates

Authors: Balduzzi, Pierluigi
Bertola, Giuseppe
Foresi, Silverio
Keywords: fed funds rates;expectation hypothesis;autocovariance functions
Issue Date: Dec-1994
Series/Report no.: FIN-94-011
Abstract: We explore the link between the overnight fed funds rate, which is actively targeted by the Federal Reserve, and longer-maturity term fed funds rates. We develop a term-structure model which explicitly accounts for interest rate targeting and for the predictability of future target changes. The model is able to replicate some qualitative features of the dynamic behavior of deviations of short-term rates from the target.
Appears in Collections:Finance Working Papers

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