Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements
This paper examines the response of the term structure of interest rates to weekly money announcements. Estimated responses for both the pre- and post-October 1979 periods are first presented. Then, two competing hypotheses involving the policy anticipations and expected inflation effects are formally specified and compared to the estimated responses.Both hypotheses are found to be consistent with the responses, but they have sharply different implications about the Federal Reserve's short-run monetary policy. The expected inflation hypothesis implies that weekly money surprises should have persistent effects on the level of the money stock, reflecting shifts in the Federal Reserve's long-run target. In contrast, the policy anticipations hypothesis implies that the effectof money surprises should diminish over time, reflecting the Federal Reserve's desire to offset deviations from target. Additional empirical results reported in the paper support this latter description of the money stock process.
|Date of creation:||Aug 1983|
|Date of revision:|
|Publication status:||published as Roley, V. Vance and Carl E. Walsh. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements." Quarterly Journal of Economics, Vol. 100, Supplement, (1985), pp. 1011-1039.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McCallum, Bennett T & Hoehn, James G, 1983. "Instrument Choice for Money Stock Control with Contemporaneous and Lagged Reserve Requirements: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 96-101, February.
- Carl E. Walsh, 1982.
"Interest Rate Volatility and Monetary Policy,"
NBER Working Papers
0915, National Bureau of Economic Research, Inc.
- Nelson, Charles R & Schwert, G William, 1977. "Short-Term Interest Rates as Predictors of Inflation: On Testing the Hypothesis That the Real Rate of Interest is Constant," American Economic Review, American Economic Association, vol. 67(3), pages 478-86, June.
- Charles Engel & Jeffrey A. Frankel, 1982.
"Why Money Announcements Move Interest Rates: An Answer from the Foreign Exchange Market,"
NBER Working Papers
1049, National Bureau of Economic Research, Inc.
- Engel, Charles & Frankel, Jeffrey, 1982. "Why money announcements move interest rates: an answer from the foreign exchange market," Proceedings, Federal Reserve Bank of San Francisco, issue 6, pages 1-36.
- V. Vance Roley & Rick Troll, 1983. "The impact of new economic information on the volatility of short-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Feb, pages 3-15.
- Cornell, Bradford, 1983. "Money Supply Announcements and Interest Rates: Another View," The Journal of Business, University of Chicago Press, vol. 56(1), pages 1-23, January.
- Nichols, Donald A & Small, David H & Webster, Charles E, Jr, 1983. "Why Interest Rates Rise When an Unexpectedly Large Money Stock Is Announced," American Economic Review, American Economic Association, vol. 73(3), pages 383-88, June.
- John H. Makin, 1982. "Effects of Inflation Control Programs on Expected Real Interest Rates (Effets exercÃ©s par les programmes de lutte contre l'inflation sur les taux d'intÃ©rÃªt rÃ©els prÃ©vus) (Efectos de los programas," IMF Staff Papers, Palgrave Macmillan, vol. 29(2), pages 204-232, June.
- Gibbons, Michael R & Hess, Patrick, 1981. "Day of the Week Effects and Asset Returns," The Journal of Business, University of Chicago Press, vol. 54(4), pages 579-96, October.
- Roley, V Vance, 1983. "The Response of Short-Term Interest Rates to Weekly Money Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 344-54, August.
- 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 409-24, November.
- Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1181. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.