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Term structure and interest rate stabilization policies in the Greenspan era

  • Anna FlorioEmail author
Article
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Abstract

Previous studies attribute the failure of the expectations theory, using the 3–6-month Treasury bill spread, to the Federal Reserve’s commitment to stabilizing interest rates. We find that with the advent of Greenspan, this spread predicts future changes in the short rate in the USA. This success can be explained by interest rate smoothing and greater transparency by the Fed. By enhancing the management of market expectations and reducing uncertainty, the central bank improves interest rate predictability and gains credibility from the market, as lower term premia suggest.

Keywords

Monetary policy Term structure Federal Reserve Expectation theory 

JEL Classification

E43 E52 

Notes

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Politecnico di Milano, Department of Management, Economics and Industrial EngineeringMilanItaly

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