Current Issues in Economics and Finance
Trends in Federal Funds Rate Volatility
July 2005 Volume 11, Number 7
JEL classification: E58

Author: Spence Hilton

The behavior of the fed funds rate—a key monetary policy target and a benchmark for short-term interest rates—is closely watched by many market participants. After a decade marked by periodic bouts of high volatility in the funds rate, volatility has declined sharply since 2001. An analysis of the major factors influencing the rate's behavior shows that some of the forces behind the current fall in volatility first emerged in response to the earlier increases.

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