Willem Thorbecke () (George Mason University, and Senior Fellow, Research Institute of Economy, Trade and Industry, 1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan) Hanjiang Zhang () (Department of Finance, McCombs School of Business, University of Texas at Austin, 1 University Station B6000, Austin, TX 78712 USA)
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Romer and Romer (2000) reported that federal funds rate increases may raise expected inflation by revealing the Federal Reserve’s private information about inflation. Gurkaynak, Sack, and Swanson (2005a) presented evidence that funds rate increases lowered long-term expected inflation. To choose between these hypotheses, we examine how monetary policy surprises affect daily traded commodity prices, term interest rates, and forward interest rates. We find that funds rate increases in the 1970s raised gold and silver prices and that increases after 1989 lowered gold and silver prices. We also find that funds rate hikes over both sample periods primarily affected short-term interest rates and near-term forward rates. For the 1970s, these results suggest that Romer and Romer’s explanation is correct. For recent years, they indicate that funds rate increases affect real rates and may also be consistent with the findings of Gu¨rkaynak, Sack, and Swanson.
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Volume (Year): 75 (2009) Issue (Month): 4 (April) Pages: 1114-1122 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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