A characteristic feature of U.S. monetary policy has been the active targeting of the overnight fed funds rate by the Federal Reserve. We show that during the 1989-1996 period, in spite of the effective targeting of the overnight fed funds rate, term fed funds rates displayed volatile and...

We assume that the instantaneous riskless rate reverts toward a central tendency which, in turn, is changing stochastically over time. As a result, current short-term rates are not sufficient to predict future short- term rate movements, as it would be the case if the central tendency were...

We explore the effects of official targeting policy on the term-structure of nominal interest rates, adapting relevant insights from theoretical work on "peso problems" to account for realistic infrequency of target changes. Our analysis of daily U.S. interest rates and newly available...