US and UK interest rates 1890-1934: new evidence on structural breaks

Newbold, P.; Leybourne, S.J.; Sollis, R.; Wohar, M.E.

Abstract

This paper presents econometric evidence on whether the founding of the Federal Reserve in 1914 caused a structural change from level stationarity to difference stationarity in U.S. and U.K. short-term nominal interest rates. We develop new econometric tests that allow for parameter transitions to test for a break of this kind and undertake a grid search analysis of dates and speeds for the change. We find that U.S. nominal interest rates most likely evolved rapidly to difference stationarity in June 1917. For the United Kingdom we fail to reject the null that U.K. interest rate series follow a difference stationary process over the entire period 1890-1934. Our analysis differs from previous research on this topic in that we take care to explore statistical uncertainty around parameter estimates, and incorporate higher-order dynamics into our econometric analysis.

Citation

Newbold, P., Leybourne, S., Sollis, R., & Wohar, M. (2001). US and UK interest rates 1890-1934: new evidence on structural breaks. Journal of Money, Credit and Banking, 33(2 Part 1), 235-250

• Journal Article Type: Article
• Publication Date: 2001-05
• Deposit Date: Aug 21, 2008
• Publicly Available Date: Aug 21, 2008
• Journal: Journal of Money, Credit and Banking
• Print ISSN: 0022-2879
• Electronic ISSN: 1538-4616
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 33
• Issue: 2 Part 1
• Pages: 235-250
• Keywords: Federal-reserve, Regime, Expectations, Adjustment.
• Public URL: https://durham-repository.worktribe.com/output/1600918
• Publisher URL: http://webmail.econ.ohio-state.edu/john/Volume33No2Pt1.php