Academic journal article Atlantic Economic Journal

Responses of Credit Card Rates to Changes in the FFR. (Anthology)

Academic journal article Atlantic Economic Journal

Responses of Credit Card Rates to Changes in the FFR. (Anthology)

Article excerpt

In recent years, the federal funds rate (FFR) has been employed as a major instrument in conducting monetary policy to stimulate or slow down the economy and to contain potential inflationary danger. For example, since January 2001, the Fed has reduced the FFR twice from 6.5 percent to 5.5 percent. One perplexing issue is whether the credit card rate (CCR) has responded to the changes in the FFR. This and other related subjects were examined by Yoo [FRBSL Review, 1998], Park [EL, 1997], Stavins [NEER, 1996], Mishkin [JEP, 1995], Calem and Mester [AER, 1995], Brito and Hartley [JPE, 1995], Ausubel [AER, 1991], and others.

This note attempts to examine the subject. Based on the available data, the sample runs from 1991.Q1 to 1998.Q4. The ADF test indicates that the CCR may or may not exhibit a unit root depending upon the lags used and that the FFR does not have a unit root. The trace and max-eigenvalue cointegration tests are inconclusive depending upon the lags used. The GRWD test shows that they are not cointegrated. It means that we are not certain whether they have a long run stable or equilibrium relationship. The coefficient of the FFR is significant at the 10 percent level. The explanatory power is quite small.

[CCR.sub.t] = 17.810 - 0.289[FFR.sub.t] [R.sup.2] 0.059; D - W 0.122; N = 32. (1)

(21.518)(-1.718)

In the second regression including [CCR.sub. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.