The Response of Interest Rates to the Federal Reserve's Weekly Money Announcements: the "Puzzle" of Anticipated Money

25 Pages Posted: 15 Mar 2007

See all articles by Richard Deaves

Richard Deaves

McMaster University - Michael G. DeGroote School of Business

James E. Pesando

University of Toronto; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 1987

Abstract

Researchers, using the survey conducted by Money Market Services, Inc., have found that the anticipated component in the Federal Reserve's weekly money supply announcement is negatively correlated with the post- announcement change in market yields. We prove that eliminating a (downward) bias in the measure of anticipated money can, in theory, eliminate this puzzle, but that improving the efficiency of an already unbiased measure cannot. We find, using Canadian as well as U.S. interest rate data, that correcting the downward bias in the survey measure reduces, but does not eliminate, the role of anticipated money.

Suggested Citation

Deaves, Richard and Pesando, James E., The Response of Interest Rates to the Federal Reserve's Weekly Money Announcements: the "Puzzle" of Anticipated Money (1987). NBER Working Paper No. w2125, Available at SSRN: https://ssrn.com/abstract=971611

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