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Effectiveness of Interest Rate Policy of the Fed in Management of Subprime Mortgage Crisis

Finance Department, American University of the Middle East, 15453 Egaila, Kuwait
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2018, 11(1), 9;
Received: 6 January 2018 / Revised: 1 February 2018 / Accepted: 2 February 2018 / Published: 6 February 2018
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
PDF [1604 KB, uploaded 7 February 2018]


The federal funds rate is one of the most important monetary policy instruments of Federal Reserve Bank of America. In this study, we analyze the effectiveness of Fed interest rate policy on different markets in the period between 1976 and 2016 through Markov regime-switching regression analysis. Results indicate that Federal funds’ rate affects labor and housing markets with a few months’ lag. However, the influence of Federal funds rate on inflation rate is quite limited. It is most probable that Fed employs alternative monetary instruments to regulate inflation. The most interesting results are obtained in the domain of personal savings. The interaction of personal savings and Federal funds rate is significant during both expansion and recession regimes. View Full-Text
Keywords: subprime mortgage crisis; Fed; interest rate policy subprime mortgage crisis; Fed; interest rate policy

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Gunay, S.; Georgievski, B. Effectiveness of Interest Rate Policy of the Fed in Management of Subprime Mortgage Crisis. J. Risk Financial Manag. 2018, 11, 9.

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