The Effects of Inflation and Money Supply Announcements on Interest Rates

23 Pages Posted: 8 Jul 2004 Last revised: 5 Aug 2022

See all articles by Thomas Urich

Thomas Urich

Santa Clara University; Fordham University - Gabelli School of Business

Paul Wachtel

New York University - Stern School of Business

Date Written: April 1984

Abstract

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

Urich, Thomas J. and Wachtel, Paul, The Effects of Inflation and Money Supply Announcements on Interest Rates (April 1984). NBER Working Paper No. w1313, Available at SSRN: https://ssrn.com/abstract=227155

Thomas J. Urich (Contact Author)

Santa Clara University ( email )

Leavey School of Business
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Fordham University - Gabelli School of Business

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Paul Wachtel

New York University - Stern School of Business ( email )

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HOME PAGE: http://www.stern.nyu.edu/~pwachtel