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

Date
1989-08-01
Authors
Falk, Barry
Orazem, Peter
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Economics
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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.

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This is a staff paper of an article from Journal of Money, Credit and Banking 21 (1989): 401, doi: 10.2307/1992423.

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