This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Monetary policy in a changing world: rising role of expectations and the anticipation effect

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Selva Demiralp

Additional information is available for the following registered author(s):

Abstract

The Federal Reserve (Fed) has maintained a general trend toward increased transparency and gradualism. This paper investigates the implications of these historical developments for the anticipation of monetary policy actions and adjustment of interest rates. In a theoretical framework, we establish the Fed's ability to manipulate overnight rates via an "anticipation" effect. The anticipation effect is defined as interest rate adjustments that take place prior to a policy announcement (or prior to when the complementary open market operations associated with that policy action take place) due to market's improved ability to predict future policy actions. Our empirical results document that most market rates adjust to anticipated policy actions prior to the actual announcement. Because the market responds to policy announcements instantly, the Trading Desk does not need to act immediately after the target change and can wait until the market incorporates the new information that comes with the policy announcement.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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://www.federalreserve.gov/pubs/feds/2001/200155/200155abs.html
File Format: text/html
File Function:
Download Restriction: no
File URL: http://www.federalreserve.gov/pubs/feds/2001/200155/200155pap.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2001-55.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2001
Date of revision:
Handle: RePEc:fip:fedgfe:2001-55

Contact details of provider:
Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
Web page: http://www.federalreserve.gov/
More information through EDIRC

Order Information:
Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Monetary policy ; Interest rates ; Federal funds rate;

Other versions of this item:

This paper has been announced in the following NEP Reports: 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.:
  1. 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. [Downloadable!]
    Other versions:
  2. William Poole & Robert H & Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 65-94. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
  4. Athanasios Orphanides, 2001. "Expectations, open market operations, and changes in the federal funds rate (commentary)," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 33-58. [Downloadable!]
  5. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February. [Downloadable!] (restricted)
    Other versions:
  6. Peter R. Fisher & Gerald D. Cohen, 1997. "Open market operations during 1996," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 565-574. [Downloadable!]
  7. William Poole, 2001. "Expectations," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 1-10. [Downloadable!]
    Other versions:
    • William Poole, 2000. "Expectations," Speech, Federal Reserve Bank of St. Louis. [Downloadable!]
  8. 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. [Downloadable!]
  9. Selva Demiralp & Òscar Jordà, 2001. "The Pavlovian response of term rates to Fed announcements," Finance and Economics Discussion Series 2001-10, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  10. James D. Hamilton & Oscar Jorda, 2000. "A Model for the Federal Funds Rate Target," NBER Working Papers 7847, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Richard G. Anderson & Robert H. Rasche, 2000. "Retail sweep programs and bank reserves, 1994--1999," Working Papers 2000-023, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  12. Laurence H. Meyer, 2001. "Does money matter?," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-16. [Downloadable!]
  13. 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. [Downloadable!]
  14. Selva Demiralp & Òscar Jordà, 2002. "The announcement effect: evidence from open market desk data," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 29-48. [Downloadable!]
    Other versions:
  15. 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. [Downloadable!]
  16. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Michael Ehrmann & Marcel Fratzscher, 2007. "Transparency, Disclosure, and the Federal Reserve," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 179-225, March. [Downloadable!]
    Other versions:
  2. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers 6070, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Jorge Sicilia & Gabriel Perez-Quiros, 2002. "Is the European Central Bank (and the United States Federal Reserve) predictable?," Working Paper Series 192, European Central Bank. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? IDEAS also indexes books.

This page was last updated on 2009-11-18.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.