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Abstract
This research investigates the relationship between the Federal Funds Rate (FEDFUNDS) and the University of Michigan Consumer Sentiment Index (UMCSENT). Employing Johansen cointegration tests, Vector Error Correction Models (VECM), and Threshold Vector Error Correction Models (TVECM), this study explores the existence of cointegration, short-term dynamics, and threshold effects between these macroeconomic indicators. Results show that there is cointegration between FEDFUNDS and UMCSENT. The findings also reveal a stable long-term relationship between FEDFUNDS and UMCSENT. Additionally, the VECM analysis demonstrates short-term adjustments in both variables, highlighting their interdependence. Further, the TVECM analysis identifies a threshold effect, indicating a shift in the relationship when FEDFUNDS crosses a specific threshold value.