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Interest Rate Uncertainty and the Founding of the Federal Reserve

Published online by Cambridge University Press:  03 March 2009

Tony Caporale  and
Barbara McKiernan
Tony Caporale
Affiliation:
Associate Professor, Department of Economics, Ohio University, Athens, OH 45701. E-mail: [email protected].
Barbara McKiernan
Affiliation:
Assistant Professor, Department of Economics, Ohio University, Athens, OH 45701. E-mail: [email protected].
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Abstract

This article examines the impact of what is undoubtedly the most important monetary regime change in U.S. history: the founding of the Federal Reserve System. We find, using a (G)ARCH model, a significant reduction in interest rate uncertainty following the founding of the Fed. Additionally, we show that the passage of the Aldrich-Vreeland Act in 1908, another significant change in policy, also led to a reduction in interest rate uncertainty. These results are robust to alternative interest rate models, as well as to incorporating the impact of other events important to financial markets in our sample.

Type
Articles
Information
The Journal of Economic History , Volume 58 , Issue 4 , December 1998 , pp. 1110 - 1117
Copyright
Copyright © The Economic History Association 1998

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