Making News: Financial Market Effects of Federal Reserve Disclosure Practices

37 Pages Posted: 17 Jul 2000

See all articles by Antulio N. Bomfim

Antulio N. Bomfim

Board of Governors of the Federal Reserve System

Vincent R. Reinhart

American Enterprise Institute (AEI)

Date Written: March 14, 2000

Abstract

As recently as early 1994, market participants had to infer the stance of U.S. monetary policy according to the type and size of the open market operations conducted by the Federal Reserve's Trading Desk. Thus, investors were exposed to uncertainty about both the timing and the motivation for monetary policy actions. Since then, changes in disclosure practices regarding monetary policy decisions have potentially mitigated both types of uncertainty. We examine the effects of the greater openness and transparency of these new practices on the way a wide array of financial market instruments responds to unanticipated policy decisions. In general, the financial markets' response to policy does not seem to be related to what the Federal Reserve says after a surprise decision is announced or to when it decides to act. The invariance of the response of asset prices to policy across time and announcement regimes suggests that what the Federal Reserve says when it acts is of second-order importance to the act itself.

Keywords: Monetary policy transparency, expectations, asset prices

JEL Classification: E58, D84, G14

Suggested Citation

Bomfim, Antulio N. and Reinhart, Vincent R., Making News: Financial Market Effects of Federal Reserve Disclosure Practices (March 14, 2000). Available at SSRN: https://ssrn.com/abstract=224843 or http://dx.doi.org/10.2139/ssrn.224843

Antulio N. Bomfim (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-735-5619 (Phone)
202-452-2301 (Fax)

Vincent R. Reinhart

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

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