Secrecy of Monetary Policy and the Variability of Interest Rates
This paper addresses the issue of how secrecy of the short-run monetary policy objectives affects the behavior of the federal-funds rate. Secrecy is modeled by assuming that financial markets are unc ertain about a parameter in the Federal Reserve reaction function. Th ey learn over time about this parameter, by means of Bayes rule, and this learning process is reflected in the time path of interest rates and of reserve aggregates. The main result of the paper is that secr ecy tends to increase the volatility of the funds rate and of reserve aggregates. Copyright 1987 by Ohio State University Press.
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Volume (Year): 19 (1987)
Issue (Month): 4 (November)
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References listed on IDEAS
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- Cyert, Richard M & DeGroot, Morris H, 1974. "Rational Expectations and Bayesian Analysis," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 521-536, May/June.
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- LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-574, May.
- Marvin Goodfriend, 1986. "A weekly rational expectations model of the nonborrowed reserve operating procedure," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 11-28.
- Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
- Nichols, Donald A & Small, David H & Webster, Charles E, Jr, 1983. "Why Interest Rates Rise When an Unexpectedly Large Money Stock Is Announced," American Economic Review, American Economic Association, vol. 73(3), pages 383-388, June.
- Michael Dotsey, 1985. "Monetary policy, secrecy, and federal funds rate behavior," Working Paper 85-04, Federal Reserve Bank of Richmond.
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