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The Response of Short-Term Interest Rates to Weekly Money Announcements


  • V. Vance Roley


The response of short-term interest rates to weekly money announcements since the Federal Reserve's change in operating procedures on October 6, 1979, is examined in this paper. The results indicate that the response increased significantly since October 1979, and that it varies nonlinearly according to the relation of money growth to the Federal Reserve!s long-run targets. The results also suggest that the increase in the response and the rise in the volatility of unanticipated money have contributed about equally to the large rise in interest rate volatility during this period.

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  • V. Vance Roley, 1982. "The Response of Short-Term Interest Rates to Weekly Money Announcements," NBER Working Papers 1001, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1001
    Note: ME

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    References listed on IDEAS

    1. Grossman, Jacob, 1981. "The "Rationality" of Money Supply Expectations and the Short-Run Response of Interest Rates to Monetary Surprises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 409-424, November.
    2. Pesando, James E, 1979. "On the Random Walk Characteristics of Short- and Long-Term Interest Rates in an Efficient Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 457-466, November.
    3. Pesando, James E, 1975. "A Note on the Rationality of the Livingston Price Expectations," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 849-858, August.
    4. Benjamin M. Friedman, 1980. "Survey Evidence on The Rationality of Interest Rate Expectations," NBER Working Papers 0261, National Bureau of Economic Research, Inc.
    5. Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
    6. Friedman, Benjamin M., 1980. "Survey evidence on the `rationality' of interest rate expectations," Journal of Monetary Economics, Elsevier, vol. 6(4), pages 453-465, October.
    7. Durbin, J, 1970. "Testing for Serial Correlation in Least-Squares Regression When Some of the Regressors are Lagged Dependent Variables," Econometrica, Econometric Society, vol. 38(3), pages 410-421, May.
    8. Cornell, Bradford, 1979. "Do Money Supply Announcements Affect Short-Term Interest Rates? A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(1), pages 80-86, February.
    9. Mishkin, Frederic S, 1982. " Monetary Policy and Short-Term Interest Rates: An Efficient Markets-Rational Expectations Approach," Journal of Finance, American Finance Association, vol. 37(1), pages 63-72, March.
    10. V. Vance Roley, 1982. "Weekly money supply announcements and the volatility of short-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Apr, pages 3-15.
    11. Evans, Paul, 1981. "Why have interest rates been so volatile?," Proceedings, Federal Reserve Bank of San Francisco, issue 5, pages 47-67.
    12. Taylor, John B, 1975. "Monetary Policy during a Transition to Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 83(5), pages 1009-1021, October.
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    Cited by:

    1. V. Vance Roley & Carl E. Walsh, 1985. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 1011-1039.
    2. Deaves, Richard & Melino, Angelo & Pesando, James E., 1987. "The response of interest rates to the Federal Reserve's weekly money announcements : The 'puzzle' of anticipated money," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 393-404, May.
    3. Victor Fang & Chien-Ting Lin & Kunaal Parbhoo, 2008. "Macroeconomic News, Business Cycles and Australian Financial Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 15(3), pages 185-207, December.
    4. George W. Kutner & James A. Seifert, 1989. "The Valuation of Mortgage Loan Commitments Using Option Pricing Estimates," Journal of Real Estate Research, American Real Estate Society, vol. 4(2), pages 13-20.
    5. William C. Melton & V. Vance Roley, 1988. "Federal Reserve Behavior Since 1980: A Financial Markets Perspective," NBER Working Papers 2608, National Bureau of Economic Research, Inc.
    6. Simpson, Marc W. & Ramchander, Sanjay & Chaudhry, Mukesh, 2005. "The impact of macroeconomic surprises on spot and forward foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 693-718, September.
    7. 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.
    8. Ito, Takatoshi & Roley, V. Vance, 1987. "News from the U.S. and Japan : Which moves the yen/dollar exchange rate?," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 255-277, March.
    9. Michael Smirlock & Jess B. Yawitz, 1984. "Asset Returns, Discount Rate Changes and Market Efficiency," NBER Working Papers 1530, National Bureau of Economic Research, Inc.
    10. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 31-50.
    11. Cronin, David, 2014. "The interaction between money and asset markets: A spillover index approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 185-202.
    12. Elmendorf, Douglas W & Hirschfeld, Mary L & Weil, David N, 1996. "The Effect of News on Bond Prices: Evidence from the United Kingdom, 1900-1920," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 341-344, May.
    13. Grant McQueen & V. Vance Roley, 1990. "Stock Prices, News, and Business Conditions," NBER Working Papers 3520, National Bureau of Economic Research, Inc.
    14. Hodgson, Allan & Kremmer, Michael L. & Lee, Shane, 1998. "Endogenous and exogenous determinants of interest rates," Journal of Multinational Financial Management, Elsevier, vol. 8(2-3), pages 249-263, September.
    15. V. Vance Roley & Simon M. Wheatley, 1990. "Temporal Variation in the Interest-Rate Response to Money Announcements," NBER Working Papers 3471, National Bureau of Economic Research, Inc.
    16. Ramchander, Sanjay & Simpson, Marc W. & Thiewes, Harold, 2008. "The effect of macroeconomic news on German closed-end funds," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(4), pages 708-724, November.

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