Date of Award


Document Type

Masters Thesis

Degree Name


Organizational Unit

College of Arts Humanities and Social Sciences, Economics

First Advisor

Yeo Hyub Yoon

Second Advisor

Juan Carlos Lopez

Third Advisor

Rafael Lorris

Fourth Advisor

Henning Schwardt


Central bank, Changes in the financial market, Financial deregulation, Horizontalists, Structuralists, Term structure of interest rates


My thesis examines the empirical patterns of interest rates in the United States in the period from 1992 to 2019. Looking into the patterns of interest rates, the spread between the Federal Funds rate and long-term interest rate is widening in the post-1990s period with the remarkable acceleration of financial innovation and financial deregulation. There has been increasing concerns about the power of monetary authorities in controlling market interest rates by setting the Federal Funds rate.

My thesis builds on the theoretical as well as the empirical literature discussing the debates among the Post-Keynesians about the determination of interest rates and role of central bank. There are two bifurcations among the Post-Keynesians tradition in understanding the nature of interest rate spread. One of the approaches -- horizontalist view (Kaldor 1992, and Moore 1988) -- believes in the complete control of the central bank in the determination of short-term interest rates and long-term interest rates via constant markup approach. This approach ignores the role of the financial markets in the interest rate determination process. The other approach, structuralist view (Pollin 1991, Dow 2006, and Palley 2008), takes a stand on the interest rate determination being a result of a complex interactive process between the central bank and the market. They deny the ultimate power of the central bank in the interest rate determination, but rather believe that the central bank can only “influence” the interest rates. The identified influence is also assumed to of a minimal level, and not significant. Conversely, market exerts a significant effect on the Federal Funds rate in a way to respond to the changing market conditions.

I use the data from 1992-2019 period and divide the sample period into three business cycles- first business cycle (January 1992 - February 2001), second business cycle (March 2001 - December 2007) and third business cycle (December 2007 – December 2019). The third business cycle is further divided into two phases, Phase I (December 2007 – May 2012) and Phase II (June 2012 – December 2019). Using a business cycle approach, I try to answer the important questions that the ongoing Post- Keynesian debate raises. Does the relationship between the long- term interest rates and short- term interest rates change or is constant through the different business cycles? Is there a long run equilibrium relationship between the interest rates in any/all periods?

Can central bank control the market interest rates by setting Federal Funds rate, or the contrary? Is the influence of market in setting the market interest rates and Federal Funds rate increasing?

Through my empirical exercise, I find the existence of a long run equilibrium relationship between the long-term market interest rates and the Federal Funds rate quite consistently throughout all the business cycles. I also note that the direction of causality mostly runs from the long-term market interest rates to the Federal Funds rate. This provides evidence confirming the structuralist approach and validates the increasing role of financial market in determining the interest rates as well as central banks’ inability to control the interest rates.

Publication Statement

Copyright is held by the author. User is responsible for all copyright compliance.

Rights Holder

Grishma Neupane


Received from ProQuest

File Format




File Size

68 pgs



Available for download on Friday, August 01, 2025