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The Role of Systematic Fed Errors in Explaining the Money Supply Announcements Puzzle

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  • Falk, Barry
  • Orazem, Peter F.

Abstract

Numerous articles have been written on the impact of the Federal Reserve's weekly announcements of changes in the money supply on interest rates.l The typical methodology utilized in these studies is to regress the change in short- or long-term interest rates (taken over a period beginning before and ending after the Fed's announcement) on measures of the market's preannouncement expectations of the change in the money supply, and on the difference between the announced change and the market's expectation of the change. The theory of efficient markets implies that only the unanticipated change in the money supply should have an effect on interest rates.

Suggested Citation

  • Falk, Barry & Orazem, Peter F., 1989. "The Role of Systematic Fed Errors in Explaining the Money Supply Announcements Puzzle," ISU General Staff Papers 198908010700001179, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genstf:198908010700001179
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