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Transparency, disclosure and the federal reserve

  • Ehrmann, Michael
  • Fratzscher, Marcel

This paper assesses the change in Federal Reserve policy introduced in 1999, with the publication of statements about the outlook for monetary policy (and later about the balance of risks) immediately after each FOMC meeting. We find that markets anticipated monetary policy decisions equally well under this new disclosure regime than before, but arrived at their expectations in different ways. Under the new regime, markets extract information from the statements, whereas before, they needed to revert to other types of Fed communication in the inter-meeting periods, and come to their own assessment of the implications of macroeconomic data releases. Taken together, these findings suggest that the Fed's new disclosure practice may indeed have improved transparency in the sense that information is now released to the markets at an earlier time and with clearer signals, but that the Fed can extract less information from observing market reactions to macroeconomic data releases. JEL Classification: E43, E52, E58, G12

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Paper provided by European Central Bank in its series Working Paper Series with number 0457.

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Date of creation: Mar 2005
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Handle: RePEc:ecb:ecbwps:20050457
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  1. Lee, Jim, 2002. "Federal funds rate target changes and interest rate volatility," Journal of Economics and Business, Elsevier, vol. 54(2), pages 159-191.
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  19. William Poole & Robert H. Rasche, 2003. "The impact of changes in FOMC disclosure practices on the transparency of monetary policy: are markets and the FOMC better "synched"?," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 1-10.
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  24. Swanson, Eric T., 2006. "Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 791-819, April.
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