The Effect of Money Shocks on Interest Rates in the Presence of Conditional Heteroskedasticity

KEVIN B. GRIER, MARK J. PERRY

Research output: Contribution to journalArticle

15 Scopus citations

Abstract

Most current empirical work finds no evidence that money shocks lower interest rates. We show that these nonresults are mainly due to a failure to model the conditional heteroskedasticity of interest rates. Autoregressive conditional heteroskedasticity (ARCH) models find a significant liquidity effect where ordinary least squares (OLS) models do not. The existence of a liquidity effect is found using different models and sample periods when ARCH models are used in estimation, but never when OLS is employed. 1993 The American Finance Association

Original languageEnglish
Pages (from-to)1445-1455
Number of pages11
JournalThe Journal of Finance
Volume48
Issue number4
DOIs
StatePublished - Sep 1993

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