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: 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada
Phone: 1-613-520-3744
Fax: 1-613-520-3906

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. Taylor, Mark P, 1992. "Modelling the Yield Curve," Economic Journal, Royal Economic Society, vol. 102(412), pages 524-37, May.
  2. Psaradakis, Zacharias & Sola, Martin, 1996. "On the power of tests for superexogeneity and structural invariance," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 151-175.
  3. Dotsey, Michael, 1987. "Monetary policy, secrecy, and federal funds rate behavior," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 463-474, December.
  4. Fama, Eugene F., 1976. "Forward rates as predictors of future spot rates," Journal of Financial Economics, Elsevier, vol. 3(4), pages 361-377, October.
  5. N. Gregory Mankiw & Jeffrey A. Miron, 1985. "The Changing Behavior of the Term Structure of Interest Rates," NBER Working Papers 1669, National Bureau of Economic Research, Inc.
  6. Glenn D. Rudebusch, 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Working Papers in Applied Economic Theory 95-02, Federal Reserve Bank of San Francisco.
  7. 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.
  8. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," Cowles Foundation Discussion Papers 785, Cowles Foundation for Research in Economics, Yale University.
  9. 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.
  10. 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.
  11. Andrew G Haldane & Vicky Read, 2000. "Monetary policy surprises and the yield curve," Bank of England working papers 106, Bank of England.
  12. Eijffinger, S.C.W. & Geraats, P., 2006. "How transparent are central banks?," Other publications TiSEM b34dfb1f-520f-4787-a08f-5, School of Economics and Management.
  13. 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.
  14. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer, vol. 18(2), pages 255-298, December.
  15. 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.
  16. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  17. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March.
  18. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  19. 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.
  20. 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.
  21. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  22. Guido Tabellini, 1986. "Secrecy of Monetary Policy and the Variability of Interest Rates," UCLA Economics Working Papers 426, UCLA Department of Economics.
  23. Kearney, Colm, 2000. "The determination and international transmission of stock market volatility," Global Finance Journal, Elsevier, vol. 11(1-2), pages 31-52.
  24. 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.
  25. 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.
  26. 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.
  27. Alvaro Escribano & Santiago Mira, 2001. "Nonlinear error correction models," Documentos de trabajo conjunto ULL-ULPGC 2001-03, Facultad de Ciencias Económicas de la ULPGC.
  28. repec:ner:tilbur:urn:nbn:nl:ui:12-88701 is not listed on IDEAS
  29. Sarno, Lucio & Thornton, Daniel L., 2003. "The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1079-1110, June.
  30. 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.
  31. 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.
  32. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
  33. 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.
  34. 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: (Renee Lortie)

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.