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Reserves Announcements and Interest Rates: Does Monetary Policy Matter?
Author(s) -
HARDOUVELIS GIKAS A.
Publication year - 1987
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.1540-6261.1987.tb02574.x
Subject(s) - interest rate , bank reserves , market liquidity , monetary economics , economics , monetary policy , excess reserves , money supply , term (time) , quantitative easing , central bank , reserve requirement , physics , quantum mechanics
ABSTRACT The author provides evidence on the perceived existence of strong liquidity effect. The analysis is based on the response of the term structure of interest rates to the weekly Federal Reserve announcements of bank reserves during the post‐October 1979 period. It is shown that unanticipated changes in the mix between borrowed and nonborrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money. A precise model is developed and tested during subperiods of nonborrowed and borrowed reserves targeting by the Fed.