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The Effects of Inflation and Money Supply Announcements on Interest Rates


  • Thomas Urich
  • Paul Wachtel


This paper examines the impact of the money supply and inflation rate announcements on interest rates. Survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements. This distinction is used to test for the efficiency of the financial market response to the announcements of new information. The results indicate that the unanticipated components of the announced changes in the Producers Price Index and in the money supply have an immediate positive effect on short term interest rates.The Consumer Price Index announcement has no apparent effect. There is no evidence of a delayed announcement effect. However, there is some indication of liquidity effect of the money supply change on interest rates. This takes place when reserves are changing and several weeks prior to the information announcement.

Suggested Citation

  • Thomas Urich & Paul Wachtel, 1984. "The Effects of Inflation and Money Supply Announcements on Interest Rates," NBER Working Papers 1313, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1313
    Note: ME

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    References listed on IDEAS

    1. 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.
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    Cited by:

    1. Elena Andreou & Eric Ghysels & Andros Kourtellos, 2013. "Should Macroeconomic Forecasters Use Daily Financial Data and How?," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 31(2), pages 240-251, April.
    2. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
    3. Michael T. Belongia & Richard G. Sheehan, 1985. "On the importance of being expected: insights to the weekly money puzzle," Working Papers 1985-007, Federal Reserve Bank of St. Louis.
    4. Arnold, Stephan & Auer, Benjamin R., 2015. "What do scientists know about inflation hedging?," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 187-214.
    5. repec:wsi:wschap:9789813148543_0012 is not listed on IDEAS
    6. Antonis Michis, 2011. "Multiscale Analysis of the Liquidity Effect," Working Papers 2011-5, Central Bank of Cyprus.
    7. Antonis Michis, 2015. "Multiscale Analysis of the Liquidity Effect in the UK Economy," Computational Economics, Springer;Society for Computational Economics, vol. 45(4), pages 615-633, April.
    8. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    9. Kroon, E.P., 1991. "Bond market efficiency : some Dutch evidence," Serie Research Memoranda 0045, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    10. Bernile, Gennaro & Hu, Jianfeng & Tang, Yuehua, 2016. "Can information be locked up? Informed trading ahead of macro-news announcements," Journal of Financial Economics, Elsevier, vol. 121(3), pages 496-520.
    11. 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.
    12. Blose, Laurence E., 2010. "Gold prices, cost of carry, and expected inflation," Journal of Economics and Business, Elsevier, vol. 62(1), pages 35-47, January.
    13. 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.
    14. Roman Matousek, 2001. "Transparency and Credibility of Monetary Policy in Transition Countries: The Case of the Czech Republic," Archive of Monetary Policy Division Working Papers 2001/37, Czech National Bank.
    15. Martin D. D. Evans & Richard K. Lyons, 2017. "Do Currency Markets Absorb News Quickly?," World Scientific Book Chapters,in: Studies in Foreign Exchange Economics, chapter 12, pages 477-505 World Scientific Publishing Co. Pte. Ltd..
    16. Hess, Dieter & Orbe, Sebastian, 2011. "Irrationality or efficiency of macroeconomic survey forecasts? Implications from the anchoring bias test," CFR Working Papers 11-13, University of Cologne, Centre for Financial Research (CFR).

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