Advanced Search
MyIDEAS: Login

The Announcement Effect: Evidence from Open Market Desk Data

Contents:

Author Info

  • Oscar Jorda
  • Selva Demiralp
  • Holly Liu
  • Jeffrey Williams

    (Department of Economics, University of California Davis)

Abstract

This paper investigates the ability of the Federal Reserve to manipulate the overnight rate without open market operations (which Demiralp and Jorda (2000) term the announcement effect), using high-frequency, open-market-desk data. Using similar data, Hamilton (1997) takes advantage of forecast errors in the Treasury balance to compute the elasticity of the federal funds rate to these errors and thus to obtain a measure of the liquidity effect. Similarly, one can view daily deviations of the federal funds rate from target as forecast errors in the reserve need (see Taylor, 2000). By analyzing the manner and the type of operation the Fed uses to maintain the federal funds rate close to its targeted value and by observing the pattern of operations on the days surrounding a change in this target, we provide evidence of the announcement effect. Furthermore, we show that the discipline of the FOMC schedule dictates, not only the process of expectations formation in the overnight rate, but also the price adjustment process of term rates.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://wp.econ.ucdavis.edu/01-4.pdf
Our checks indicate that this address may not be valid because: 500 Can't connect to wp.econ.ucdavis.edu:80 (10060). If this is indeed the case, please notify (Scott Dyer)
Download Restriction: no

Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 14.

as in new window
Length: 39
Date of creation: 16 Jan 2003
Date of revision:
Handle: RePEc:cda:wpaper:01-4

Contact details of provider:
Postal: One Shields Ave., Davis, CA 95616-8578
Phone: (530) 752-0741
Fax: (530) 752-9382
Email:
Web page: http://www.econ.ucdavis.edu
More information through EDIRC

Related research

Keywords: open market operations; announcement effect; term structure;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Furfine, Craig H., 2000. "Interbank payments and the daily federal funds rate," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 535-553, October.
  2. Michael Woodford, 2000. "Monetary Policy in a World Without Money," NBER Working Papers 7853, National Bureau of Economic Research, Inc.
  3. Daniel L. Thornton, 2001. "Identifying the liquidity effect at the daily frequency," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 59-82.
  4. Marvin Goodfriend & William Whelpley, 1998. "Federal funds," Monograph, Federal Reserve Bank of Richmond, number 1998f.
  5. James D. Hamilton & Oscar Jorda, 2002. "A Model of the Federal Funds Rate Target," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1135-1167, October.
  6. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  7. John B. Taylor, 2001. "Expectations, open market operations, and changes in the federal funds rate," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 33-58.
  8. Glenn D. Rudebusch, 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Working Papers in Applied Economic Theory 95-02, Federal Reserve Bank of San Francisco.
  9. R. Alton Gilbert, 1985. "Operating procedures for conducting monetary policy," Review, Federal Reserve Bank of St. Louis, issue Feb.
  10. Richard G. Anderson & Robert H. Rasche, 2001. "Retail sweep programs and bank reserves, 1994-1999," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 51-72.
  11. Feinman, Joshua N, 1993. "Estimating the Open Market Desk's Daily Reaction Function," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 231-47, May.
  12. Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, vol. 87(1), pages 80-97, March.
  13. Cheryl L. Edwards, 1997. "Open market operations in the 1990s," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 859-874.
  14. Leonardo Bartolini & Giuseppe Bertola & Alessandro Prati, 2000. "Day-to-day monetary policy and the volatility of the federal funds interest rate," Staff Reports 110, Federal Reserve Bank of New York.
  15. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October.
  16. Peter R. Fisher & Spence Hilton, 1999. "Highlights of domestic open market operations during 1998," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 217-235.
  17. 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.
  18. Peter R. Fisher & Gerald D. Cohen, 1996. "Domestic open market operations during 1996," Annual Report Domestic Open Market Operations, Federal Reserve Bank of New York.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cda:wpaper:01-4. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Scott Dyer).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.