NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism

Benjamin M. Friedman

NBER Working Paper No. 917 (Also Reprint No. r0431)
Issued in June 1982
NBER Program(s):   ME

The evidence presented in this paper leads to three conclusions about possible effects on the U.S. long-term capital. raising mechanism due to the sharp increase in interest rate volatility that has followed the Federal Reserve System's adoption of new monetary policy procedures in 1979. First, the increased volatility has probably led nonfinancial corporations to finance less of their external funds requirements at long term than they would other- wise have done. Second, the increased volatility has probably led underwriters of high grade corporate bonds to increase the spread of a typical new issue's yield over the prevailing market yield on comparable bonds already outstanding. Third, there is little firm basis (reported here, anyway) to conclude that the increased volatility in particular has affected investors' portfolio behavior in the bond market.

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Document Object Identifier (DOI): 10.3386/w0917

Published: Friedman, Benjamin M. "Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism." Journal of Money, Credit, and Banking, Vol. 14, No. 4, (November 1982, part 2), pp. 721-745.

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