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Market Response to the Weekly Money Supply Announcements in the 1970s
Author(s) -
URICH THOMAS,
WACHTEL PAUL
Publication year - 1981
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1981.tb01076.x
Subject(s) - anticipation (artificial intelligence) , money supply , monetary economics , interest rate , economics , monetary policy , money market , autoregressive integrated moving average , financial market , finance , time series , machine learning , artificial intelligence , computer science
The hypothesis that the weekly announcement of the money supply affects interest rates is examined. The announcement effect is interpreted as a policy anticipation effect. That is, an unanticipated increase in the money supply leads to an increase in interest rates in anticipation of future tightening by the Federal Reserve. Estimates of this effect with proxies for the unanticipated change constructed from a survey of money supply forecasts and an ARIMA model indicate that: (a) financial markets respond very quickly to the announcement; and (b) the response was largest when policymakers emphasized the importance of the monetary aggregates.