TY  - JOUR
AU  - Mankiw,N. Gregory
AU  - Miron,Jeffrey A.
TI  - The Changing Behavior of the Term Structure of Interest Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1669
PY  - 1986
Y2  - July 1986
UR  - http://www.nber.org/papers/w1669
L1  - http://www.nber.org/papers/w1669.pdf
N1  - Author contact info:
N. Gregory Mankiw
Department of Economics
Littauer 223
Harvard University
Cambridge, MA  02138
Tel: 617/495-4301
Fax: 617/495-7730
E-Mail: ngmankiw@fas.harvard.edu

Jeffrey A. Miron
Department of Economics
Harvard University
Cambridge, MA 02138
Tel: 781/856-0086
Fax: 617/495-8570
E-Mail: miron@fas.harvard.edu
AB  - We reexamine the expectations theory of the term structure using data at the short end of the maturity spectrum. We find that prior to the founding ofthe Federal Reserve System in 1915, the spread between long rates and short rates has substantial predictive power for the path of interest rates; after 1915, however, the spread contains much less predictive power. We then show that the short rate is approximately a random walk after the founding of the Fed but not before. This latter fact, coupled with even slight variation inthe term premium, can explain the observed change in 1915 in the performance of the expectations theory. We suggest that the random walk character of the short rate may be attributable to the Federal Reserve's commitment to stabilizing interest rates.
ER  -