Do Markets Respond More To More Reliable Labor Market Data? A Test of Market Rationality
AbstractSince 1979, the Bureau of Labor Statistics (BLS) has nearly quadrupled the size of the sample used to estimate monthly employment changes. Although first-reported employment estimates are still noisy, the magnitude of sampling variability has declined in proportion to the increase in the sample size. A model of rational Bayesian updating predicts that investors would assign more weight to the BLS employment survey as it became more precise. However, a regression analysis of changes in interest rates on the day the employment data are released finds no evidence that the bond market's reaction to employment news intensified in the late 1980s or 1990s; indeed, in the late 1990s and early 2000s the bond markets hardly reacted to unexpected employment news. For the time period as a whole, an unexpected increase of 200,000 jobs is associated with about a 6 basis point increase in the interest rate on 30-year Treasury bonds, and an 8 basis point increase in the interest rate on three-month bills, all else equal. Additionally, unexpected changes in the unemployment rate and revisions to past months' employment estimates have statistically insig-nificant effects on long-term interest rates. (JEL: G14, J23) Copyright (c) 2003 The European Economic Association.
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Bibliographic InfoPaper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 746.
Date of creation: Sep 1996
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interest rates; employment rational;
Other versions of this item:
- Alan B. Krueger & Kenneth N. Fortson, 2003. "Do Markets Respond More to More Reliable Labor Market Data? A Test of Market Rationality," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 931-957, 06.
- Alan B. Krueger, 1996. "Do Markets Respond More to More Reliable Labor Market Data? A Test of Market Rationality," NBER Working Papers 5769, National Bureau of Economic Research, Inc.
- Alan B. Krueger & Kenneth N. Forston, 2003. "Do Markets Respond More to More Reliable Labor Market Data? A Test of Market Rationality," Working Papers 114, Princeton University, Department of Economics, Center for Economic Policy Studies..
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
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