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The Money Supply Announcements Puzzle: Comment

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  • Falk, Barry
  • Orazem, Peter F.

Abstract

In a recent paper in this Review (1983), Bradford Cornell presented a survey of existing literature on the empirical relationship between weekly money supply announcements made by the Federal Reserve and changes in the spot prices of several financial instruments at the time of the announcement. Cornell sought to unify and extend the work done in this area by estimating a number of relationships which bear directly on this issue. Among his main conclusions are that "asset markets are efficient with re­spect to money supply announcements" since "only the unexpected component of the announcement is correlated with price changes," and that the unexpected compo­ nent of money supply announcements has "a highly significant positive correlation" with short-term interest rates, but only after the October 6, 1979 change in Fed policy (p. 651). Both of these conclusions are at vari­ ance with results reported in similar studies by Jacob Grossman (1981), V. Vance Roley (1982), and Thomas Urich and Paul Wachtel (1981). All three find that unanticipated announcements matter in periods before October 6, 1979, and Roley and Urich-Wachtel find that anticipated announcements matter in at least some of their regressions.

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  • Falk, Barry & Orazem, Peter F., 1985. "The Money Supply Announcements Puzzle: Comment," ISU General Staff Papers 198506010700001266, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:198506010700001266
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    Cited by:

    1. V. Vance Roley, 1986. "The Response of Interest Rates to Money Announcements under Alternative Operating Prosedures and Reserve Requirement Systems," NBER Working Papers 1812, National Bureau of Economic Research, Inc.
    2. Timothy Q. Cook & Steve Korn, 1991. "The reaction of interest rates to the employment report: the role of policy anticipations," Economic Review, Federal Reserve Bank of Richmond, vol. 77(Sep), pages 3-12.
    3. V. Vance Roley, 1986. "U.S. Monetary Policy Regimes and U.S.-Japan Financial Relations," NBER Working Papers 1858, National Bureau of Economic Research, Inc.
    4. Rik Hafer, 1985. "Further evidence on stock price response to changes in weekly money and the discount rate," Working Papers 1985-015, Federal Reserve Bank of St. Louis.

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