Article
The Change in the CD Rate-Target Federal Funds Rate During the Financial Crisis
Applied Economic Letters
(2011)
Abstract
This study examines the target federal funds rate-Certificate of Deposit (CD) rate link over two time periods. The first period is 16 May 2000 to 31 July 2007 and the second is 1 August 2007 to 31 July 2009. August 2007 begins the initial stages of the financial crisis. A time-series analysis compares the two time periods. The results reveal a breakdown in the typical target–CD rate linkage in August 2007. For the 2-year period after August 2007 banks remained resilient to lower CD rates. This resiliency confirms the noted tightening of credit and bank uncertainty. During the 2-year period banks maintained firm CD rates as a way to attract funds in a period of growing uncertainty even with the target and other short-term rates falling.
Keywords
- CD rates,
- target federal funds rate,
- cointegration,
- financial crisis
Disciplines
Publication Date
2011
DOI
10.1080/13504851.2011.617690
Citation Information
Bobby Barnes. "The Change in the CD Rate-Target Federal Funds Rate During the Financial Crisis" Applied Economic Letters Iss. 12 (2011) Available at: http://works.bepress.com/bobby-barnes/1/