Interest rates

Doug Henwood dhenwood at
Thu Aug 10 11:37:18 MDT 1995

At 10:38 PM 8/9/95, glevy at wrote:

>There isn't one interest rate, there are many.  It is one thing to have a
>general theory of interest rate determination, it is another thing to
>explain how these more specific interest rates are modified at more
>concrete levels of determination.  For instance, if we are to understand
>the discount rate, we have to understand monetary policy and the Fed. If
>we want to understand the prime rate, we have to understand the
>relationship between finance capital and corporate capital.

Well, yeah, there are many interest rates, and the spreads between sound &
risky credits and long- and short-term ones do vary over the business and
credit cycles. But they are still highly correlated, as this table shows.
The time periods covered are those for which the Federal Reserve has
published historical data. Obviously, for rates with starting years earlier
than 1934, the correl coeff begins in 1934, when the T-bill series did. I
just copied the starting year from my historical spreadsheet for
simplicity's sake.

(based on monthly averages)

                              correl   starting
                              coeff      year

federal funds                 0.986      1954
Fed discount rate             0.983      1934

US Treasuries
3-month bills                 1.000      1934
1-year                        0.991      1953
2-year                        0.968      1976
3-year                        0.963      1953
5-year                        0.943      1953
7-year                        0.884      1969
10-year                       0.916      1953
long (>10yr)                  0.917      1919
30-year                       0.858      1977

muni (Bond Buyer 20/20)       0.888      1919
30-day commercial paper       0.985      1971
prime rate                    0.982      1934
3-mo CDs                      0.988      1964
3-mo bankers acceptances      0.994      1941

Aaa                           0.927      1919
Baa                           0.892      1919



Doug Henwood
[dhenwood at]
Left Business Observer
250 W 85 St
New York NY 10024-3217
+1-212-874-4020 voice
+1-212-874-3137 fax

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