Lifting the Veil of Secrecy from Monetary Policy: Evidence from the Fed's Early Discount Rate Policy
Traditionally, monetary policy has been conducted under a veil of secrecy. In its landmark Freedom of Information Act case, the Federal Reserve argued that it needed to delay the disclosure of its policy decisions, claiming that immediate disclosure would cause the market to react in a way that was inconsistent with the Fed's intentions. Based on this argument and others, the Fed was permitted to delay the release of FOMC policy decisions. Most economists, however, believe that market forces would work to keep equilibrium outcomes more in line with policy maker's intentions if policy makers would announce their intentions and establish a reputation for behaving in a manner consistent with them. This paper tests the hypothesis that the market responds more closely to the Fed's intentions when the Fed makes its intentions known by investigating the market's reaction to a change in discount rate policy in the early 1960s. We find that the market responded in a manner inconsistent with the Fed's intentions when they were unknown, and responds in a manner consistent with them when the Fed made its intentions known.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 32 (2000)
Issue (Month): 2 (May)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879|
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.:
- Daniel L. Thornton, 1996. "The information content of discount rate announcements: what's behind the announcement effect?," Working Papers 1994-032, Federal Reserve Bank of St. Louis.
- Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, March.
- V. Vance Roley & Rick Troll, 1984. "The impact of discount rate changes on market interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Jan, pages 27-39.
- Smirlock, Michael J & Yawitz, Jess B, 1985. " Asset Returns, Discount Rate Changes, and Market Efficiency," Journal of Finance, American Finance Association, vol. 40(4), pages 1141-58, September.
- Robert V. Roosa, 1959. "Credit Policy at the Discount Window: Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 73(2), pages 333-337.
- Cook, Timothy & Hahn, Thomas, 1988. "The Information Content of Discount Rate Announcements and Their Effect on Market Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 167-80, May.
- Waud, Roger N, 1970. "Public Interpretation of Federal Reserve Discount Rate Changes: Evidence on the 'Announcement Effect'," Econometrica, Econometric Society, vol. 38(2), pages 231-50, March.
- Dallas S. Batten & Daniel L. Thornton, 1983.
"Discount rate changes and the foreign exchange market,"
1983-016, Federal Reserve Bank of St. Louis.
- Batten, Dallas S. & Thornton, Daniel L., 1984. "Discount rate changes and the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 279-292, December.
- Marvin Goodfriend, 1985.
"Monetary mystique : secrecy and central banking,"
85-07, Federal Reserve Bank of Richmond.
- Warren L. Smith, 1958. "The Discount Rate as a Credit-Control Weapon," Journal of Political Economy, University of Chicago Press, vol. 66, pages 171.
- Hakkio, Craig S. & Pearce, Douglas K., 1992. "Discount rate policy under alternative operating procedures: An empirical investigation," International Review of Economics & Finance, Elsevier, vol. 1(1), pages 55-72.
- Edward C. Simmons, 1956. "A Note On The Revival Of Federal Reserve Discount Policy," Journal of Finance, American Finance Association, vol. 11(4), pages 413-421, December.
- Michael J. Dueker, 1992. "The response of market interest rates to discount rate changes," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 78-91.
- Wagster, John, 1993. "The Information Content of Discount Rate Announcements Revisited: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 132-37, February.
- Mark Rush & Gordon H. Sellon & Li Zhu, 1994. "The role of the discount rate in monetary policy," Research Working Paper 94-01, Federal Reserve Bank of Kansas City.
This item is featured on the following reading lists or Wikipedia pages:
When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:32:y:2000:i:2:p:155-67. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.