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The Response of Interest Rates to the Federal Reserve's Weekly Money Announcements: The "Puzzle" of Anticipated Money

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Author Info
Richard Deaves
Angelo Melino
James E. Pesando

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Abstract

Researchers, using the survey conducted by Money Market Services, Inc., have found that the anticipated component in the Federal Reserve's weekly money supply announcement is negatively correlated with the post- announcement change in market yields. We prove that eliminating a (downward) bias in the measure of anticipated money can, in theory, eliminate this puzzle, but that improving the efficiency of an already unbiased measure cannot. We find, using Canadian as well as U.S. interest rate data, that correcting the downward bias in the survey measure reduces, but does not eliminate, the role of anticipated money.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2125.

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Date of creation: Jan 1987
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Handle: RePEc:nbr:nberwo:2125

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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. Roley, V Vance, 1983. "The Response of Short-Term Interest Rates to Weekly Money Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 344-54, August. [Downloadable!] (restricted)
  2. V. Vance Roley, 1983. "The Response of Short-Term Interest Rates to Weekly Money Announcements," NBER Working Papers 1001, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Michael T. Belongia & R.W. Hafer & Richard G. Sheehan, 1986. "A note on the temporal stability of the interest rate-weekly money relationship," Working Papers 1986-002, Federal Reserve Bank of St. Louis. [Downloadable!]
  4. Pesando, James E, 1979. "On the Random Walk Characteristics of Short- and Long-Term Interest Rates in an Efficient Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 457-66, November. [Downloadable!] (restricted)
  5. 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)
  6. V. Vance Roley & Carl E. Walsh, 1986. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements," NBER Working Papers 1181, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September. [Downloadable!] (restricted)
  8. Thomas Urich & Paul Wachtel, 1984. "The Structure of Expectations of the Weekly Money Supply Announcement," NBER Working Papers 1090, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  10. Hein, Scott E, 1985. "The Response of Short-term Interest Rates to Weekly Money Announcements: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 264-71, May. [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. Richard G. Sheehan & R.W. Hafer, 1987. "On the response of interest rates to unexpected weekly money: are policy changes important?," Working Papers 1987-005, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. Daniel L. Thornton, 1989. "Tests of covered interest rate parity," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 55-66. [Downloadable!]
  3. William Poole, 1987. "Monetary Policy Lessons of recent Inflation and Disinflation," NBER Working Papers 2300, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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