The Dynamic Relationship Between the Federal Funds Rate and the Treasury Bill Rate
ABSTRACT: This article examines empirically the dynamic relationship between two key US money market interest rates – the federal funds rate and the 3-month Treasury bill rate. Using daily data over the period 1974-1999, we show that a long-run no-arbitrage relationship exists between these two rates. This relationship is shown to be remarkably stable across monetary policy regimes of interest rate and monetary aggregate targeting. … [ Read more ]
Content: Article | Authors: Daniel L. Thornton, Lucio Sarno | Source: Federal Reserve Bank of St. Louis | Subjects: Economics, Finance | Industry: Finance / Banking