Regime changes and interest rate risk

This paper employs the Bai and Perron (1998, 2003) structural break methodology to investigate important structural shifts in US interest rates using data from 1890.01 to 1933.12. I find evidence for two large structural shifts in my monthly sample. The second shift is found to start in September 1917. This supports the view of several studies which argue that US entry into World War 1 and subsequent wartime policies, rather than the founding of the Federal Reserve in 1914, caused a major change in the behavior of nominal interest rates. (C) 2015 Elsevier B.V. All rights reserved.