Interest Rates, Money Supply Announcements, and Monetary Base Announcements
70 Pages Posted: 28 May 2004 Last revised: 31 Aug 2010
Date Written: September 1985
This paper presents a new set of empirical regularities on the link between interest rates, money supply announcements and monetary base announcements. Among the main findings reported are: (i) unexpected increases in the announced monetary base have a significantly positive effect on interest rates during the period from October 1979 to October 1982; (ii) although unexpected money supply and monetary base announcements have the same impact on interest rates, they have different implications for the future behavior of the money supply and monetary base; (iii) the significant response of longer-term interest rates to unexpected monetary announcements is reflecting a response of current and expected future short-term rates -- i.e.term-structure premia are not altered by these announcements.
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