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Anticipation of Monetary Policy and Open Market Operations

  • Carpenter, Seth
  • Demiralp, Selva

Central banking transparency is now a topic of great interest, but its impact on the implementation of monetary policy has not been studied. This paper documents that anticipated changes in the target federal funds rate complicate open market operations. We provide theoretical and empirical evidence on the behavior of banks and the Open Market Trading Desk. We find a significant shift in demand for funds ahead of expected target rate changes and that the Desk only incompletely accommodates this shift in demand. This anticipation effect, however, does not materially affect other markets.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 704.

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Date of creation: 28 Mar 2006
Date of revision:
Publication status: Published in International Journal of Central Banking Number 2.Volume(2006): pp. 25-63
Handle: RePEc:pra:mprapa:704
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  1. Selva Demiralp & Òscar Jordà, 2002. "The announcement effect: evidence from open market desk data," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 29-48.
  2. Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, vol. 87(1), pages 80-97, March.
  3. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October.
  4. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
  5. Lange, Joe & Sack, Brian & Whitesell, William, 2003. " Anticipations of Monetary Policy in Financial Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 889-909, December.
  6. Seth B. Carpenter & Selva Demiralp, 2004. "The liquidity effect in the federal funds market: evidence from daily open market operations," Finance and Economics Discussion Series 2004-61, Board of Governors of the Federal Reserve System (U.S.).
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