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The Effects of Inflation and Money Supply Announcements on Interest Rates

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Author Info
Thomas Urich
Paul Wachtel
Abstract

This paper examines the impact of the money supply and inflation rate announcements on interest rates. Survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements. This distinction is used to test for the efficiency of the financial market response to the announcements of new information. The results indicate that the unanticipated components of the announced changes in the Producers Price Index and in the money supply have an immediate positive effect on short term interest rates.The Consumer Price Index announcement has no apparent effect. There is no evidence of a delayed announcement effect. However, there is some indication of liquidity effect of the money supply change on interest rates. This takes place when reserves are changing and several weeks prior to the information announcement.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1313.

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Date of creation: Nov 1984
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Handle: RePEc:nbr:nberwo:1313

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  1. Cornell, Bradford, 1983. "Money Supply Announcements and Interest Rates: Another View," Journal of Business, University of Chicago Press, vol. 56(1), pages 1-23, January. [Downloadable!] (restricted)
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(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 J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Research Paper 9706, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  2. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March. [Downloadable!]
    Other versions:
  3. Michael T. Belongia & Richard G. Sheehan, 1985. "On the importance of being expected: insights to the weekly money puzzle," Working Papers 1985-007, Federal Reserve Bank of St. Louis. [Downloadable!]
  4. Martin D.D. Evans & Richard K. Lyons, 2005. "Do Currency Markets Absorb News Quickly?," NBER Working Papers 11041, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Kroon, E.P., 1991. "Bond market efficiency : some Dutch evidence," Serie Research Memoranda 0045, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
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