The information content of discount rate announcements and their effect on market interest rates
This paper presents evidence that throughout the 1973-85 period the Federal Reserve systematically used certain types of discount rate announcements to signal changes in its policy instrument, the Federal funds rate. Market participants understood the signals contained in discount rate announcements and used them to revise their expectations of the future path of the funds rate. These revisions in funds rate expectations caused movements in Treasury bill rates. The paper also presents evidence that discount rate announcements signaling changes in the funds rate had a strong effect on bond rates in the period since October 1979.
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- 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.
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