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Market-Based Monetary Policy Transparency Index, Risk and Volatility - The Case of the United States

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    This paper extends the literature by developing an objective market-based index, which is dynamic and continuous and can be used to measure the monetary policy transparency for a country or, simultaneously, a series of countries. It was found that the more transparent the monetary policy is, the less risky and volatile the money market will be. Furthermore, during the tenure of Chairman Greenspan the volatility and risk in the money market fell. The policy regime changes of adjusting the target rate by multiples of 25 or 50 basis points and including a balance-of-risks sentence in FOMC statements also resulted in a reduction in volatility in the money markets.

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    File URL: http://www.carleton.ca/economics/wp-content/uploads/cep04-07.pdf
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    Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 04-07.

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    Length: 40 pages
    Date of creation: Apr 2004
    Date of revision:
    Publication status: Published: Carleton Economic Papers
    Handle: RePEc:car:carecp:04-07
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    8. International Monetary Fund, 2003. "Cross-Country and Cross-Sector Analysis of Transparency of Monetary and Financial Policies," IMF Working Papers 03/94, International Monetary Fund.
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    18. repec:ner:tilbur:urn:nbn:nl:ui:12-88701 is not listed on IDEAS
    19. 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.
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