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The Information Content of German Discount Rate Changes

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  • Manfred J. M Neumann
  • Jens Weidmann
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    Abstract

    Discount rate changes always receive considerable attention in financial markets and a bulk of empirical papers shows that asset prices react to them. However, among researcher, there is no consensus yet about why markets respond to such changes. This paper analyses this issue for the Bundesbank's discount rate changes after 1979. The empirical results indicate that the overnight rate reacts to changes in the discount rate to the extent that they are unanticipated. In contrast, the response to anticipated changes in the discount rate is much smaller and insignificant. Moreover, the response of the overnight rate cannot be attributed to a direct "borrowing cost effect", but exclusively to announcement effects.

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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 367.

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    Length: pages
    Date of creation: Jul 1996
    Date of revision:
    Handle: RePEc:bon:bonsfb:367

    Contact details of provider:
    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: Discount rate; announcement effects; Deutsche Bundesbank;

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    Cited by:
    1. Rai, Anoop & Seth, Rama & Mohanty, Sunil K., 2007. "The impact of discount rate changes on market interest rates: Evidence from three European countries and Japan," Journal of International Money and Finance, Elsevier, vol. 26(6), pages 905-923, October.

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