A Comment: “Short-Run Interest Rate Cycles in the U.S.: 1954–1967 ”

Extract

In a paper published in an earlier issue of this journal, Melnik and Kraus [3] reported the results of their time-series analysis of the yields on U.S. government securities. The data used by the authors are somewhat unique in that the observations were derived from a regression-fitted yield curve, and in that the trend in mean was removed by employing deviations from a fitted trend line as the time series to be analyzed. The authors applied cross-spectral methods to their derived monthly time series for ninety-day Treasury bills and ten-year Treasury bonds, encompassing the years 1954–1967. Their interpretation of the results of their analysis led the authors to conclude that a cycle of eighteen to twenty-four months is significant and that the ten-year rate leads the short rate, thus apparently lending credence to the expectations hypothesis of the term structure of interest rates. A close examination of the basis for the Melnik and Kraus conclusions leads one to believe that they are questionable on the following two counts.