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The Changing Probability of a Monetary Policy Response to Inflation and Employment Announcements

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  • Adrienne A. Kearney

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    (: Department of Economics, University of Maine)

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    Abstract

    This paper investigates the changing probability of a monetary policy response to inflation and employment announcements within the Federal Funds targeting procedure. It is found that employment announcements are significantly linked to Federal Reserve policy actions and the probability of no change in the funds target more than doubles in going from the March 1984-March 1991 period to the April 1994-January 2002 period. This change in policy behavior is also mirrored by the behavior of financial market participants; employment surprises help explain movements in the T-bill rate in the earlier period but not in the later period.

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    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume29/V29N4P565_574.pdf
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    Bibliographic Info

    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 29 (2003)
    Issue (Month): 4 (Fall)
    Pages: 565-574

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    Handle: RePEc:eej:eeconj:v:29:y:2003:i:4:p:565-574

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    Related research

    Keywords: Employment; Fund; Inflation; Monetary Policy; Monetary; Policy;

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    1. H. Robert Heller, 1988. "Implementing monetary policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 419-429.
    2. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
    3. Lombra, Raymond E., 1994. "Modeling changes in monetary policy regimes," Journal of Macroeconomics, Elsevier, vol. 16(4), pages 671-682.
    4. William T. Gavin & Rachel J. Mandal, 2000. "Mixed signals?," National Economic Trends, Federal Reserve Bank of St. Louis, issue Jul.
    5. Timothy Cook & Steven Korn, 1991. "The reaction of interest rates to the employment report: the role of policy anticipations," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 3-12.
    6. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
    7. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
    8. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
    9. Ray C. Fair, 2001. "Actual Federal Reserve policy behavior and interest rate rules," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 61-72.
    10. Kearney, Adrienne A., 1996. "The effect of changing monetary policy regimes on stock prices," Journal of Macroeconomics, Elsevier, vol. 18(3), pages 429-447.
    11. Hardouvelis, Gikas A., 1987. "Macroeconomic information and stock prices," Journal of Economics and Business, Elsevier, vol. 39(2), pages 131-140, May.
    12. Vanderhart, Peter G., 2000. "The Federal Reserve's Reaction Function under Greenspan: An Ordinal Probit Analysis," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 631-644, October.
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