Working Paper: NBER ID: w0993
Authors: John H. Makin
Abstract: This note attempts to reconcile contradictory findings regarding the impact of money surprises on short term interest rates. Expectations effects regarding anticipated monetary policy and anticipated inflation suggest a positive relationship. Liquidity and output effects of monetary surprises suggest a negative relationship. It is shown that intra-day data and end-of-period data will capture expectations effects while period average data will capture liquidity/output effects. Seemingly contradictory results are reconciled by differences in dependent variables employed by various authors.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money surprises (E41) | nominal interest rates (E43) |
| expected tightening (E31) | nominal interest rates (E43) |
| liquidity/output effects (E51) | nominal interest rates (E43) |