IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Developing a Market-Based Monetary Policy Transparency Index and Testing Its Impact on Risk and Volatility in the United States

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 agents in the money market are forward looking and 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 money markets.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.carleton.ca/economics/wp-content/uploads/cep05-02.pdf
Download Restriction: no

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 05-02.

as
in new window

Length: 52 pages
Date of creation: 21 Feb 2005
Date of revision:
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:05-02
Contact details of provider: Postal:
C870 Loeb Building, 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada

Phone: 613-520-3744
Fax: 613-520-3906

Order Information: Email:


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.:

as in new window
  1. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  2. Lucio Sarno & Daniel L. Thornton, 2002. "The dynamic relationship between the federal funds rate and the Treasury bill rate: an empirical investigation," Working Papers 2000-032, Federal Reserve Bank of St. Louis.
  3. Marvin Goodfriend, 1985. "Monetary mystique : secrecy and central banking," Working Paper 85-07, Federal Reserve Bank of Richmond.
  4. Z. Psaradakis & M. Solá, 1993. "On the power of tests for superexogeneity and structural invariance," Documentos de Trabajo (working papers) 0993, Department of Economics - dECON.
  5. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
  6. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers.
  7. William Poole & Robert H. Rasche, 2000. "Perfecting the market's knowledge of monetary policy," Working Papers 2000-010, Federal Reserve Bank of St. Louis.
  8. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," NBER Working Papers 1885, National Bureau of Economic Research, Inc.
  9. Alvaro Escribano & Santiago Mira, 2001. "Nonlinear error correction models," Documentos de trabajo conjunto ULL-ULPGC 2001-03, Facultad de Ciencias Económicas de la ULPGC.
  10. Amir Kia, 2003. "Forward-looking agents and macroeconomic determinants of the equity price in a small open economy," Applied Financial Economics, Taylor & Francis Journals, vol. 13(1), pages 37-54.
  11. Engle, R. & Hendry, D., 1990. "Testing Super Exogeneity And Invariance In Regression Models," Economics Series Working Papers 99100, University of Oxford, Department of Economics.
  12. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
  13. Kearney, Colm, 2000. "The determination and international transmission of stock market volatility," Global Finance Journal, Elsevier, vol. 11(1-2), pages 31-52.
  14. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  15. Fama, Eugene F., 1976. "Forward rates as predictors of future spot rates," Journal of Financial Economics, Elsevier, vol. 3(4), pages 361-377, October.
  16. Tabellini, Guido, 1987. "Secrecy of Monetary Policy and the Variability of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 425-36, November.
  17. Andrew G Haldane & Vicky Read, 2000. "Monetary policy surprises and the yield curve," Bank of England working papers 106, Bank of England.
  18. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
  19. Grayham E. Mizon & David F. Hendry, 1998. "Exogeneity, causality, and co-breaking in economic policy analysis of a small econometric model of money in the UK," Empirical Economics, Springer, vol. 23(3), pages 267-294.
  20. G. William Schwert, 1988. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  21. Hendry, David F & Ericsson, Neil R, 1991. "An Econometric Analysis of U.K. Money Demand in 'Monetary Trends in the United States and the United Kingdom' by Milton Friedman and Anna Schwartz," American Economic Review, American Economic Association, vol. 81(1), pages 8-38, March.
  22. Taylor, Mark P, 1992. "Modelling the Yield Curve," Economic Journal, Royal Economic Society, vol. 102(412), pages 524-37, May.
  23. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
  24. James Van Horne, 1965. "Interest-Rate Risk and the Term Structure of Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 73, pages 344.
  25. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 211-228.
  26. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, May.
  27. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  28. Dotsey, Michael, 1987. "Monetary policy, secrecy, and federal funds rate behavior," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 463-474, December.
  29. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  30. 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.
  31. Officer, R R, 1973. "The Variability of the Market Factor of the New York Stock Exchange," The Journal of Business, University of Chicago Press, vol. 46(3), pages 434-53, July.
  32. 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.
  33. Peter Howells & Iris Biefang-Frisancho Mariscal, 2003. "Central Bank Transparency: A Market Indicator," Working Papers 0305, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:car:carecp:05-02. 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: (Sabrina Robineau)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.