The author provides evidence on the perceived existence of a strong liquidity effect. The analysis is based on the response of the term structure of interest rates to the weekly Federal Reserve announcements of bank reserves during the post-October 1979 time period. It is shown that unanticipated changes in the mix between borrowed and non-borrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money. A precise model is developed and tested during subperiods of non-borrowed and borrowed reserve targeting by the Fed. Copyright 1987 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 42 (1987) Issue (Month): 2 (June) Pages: 407-22 Download reference. The following formats are available: HTML,
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