Monetary transmission—federal funds rate and CD rates

摘要

This paper investigates two different interpretations of the same empirical finding that long-term market rates Granger cause policy-controlled rates. Pollin (1991) interprets the finding in the usual manner (the structural position). Moore (1991) interprets the causality relationship in reverse (the accommodative position). This paper derives the term structure of CD rates. Then, using CD rates, it provides empirical evidence that appears consistent with Moore's interpretation. In addition, the causality relationship between long-term bond yields and the federal funds rate is examined. The results are consistent with the accommodative position under the assumption of the expectations theory of the term structure.