Working Paper: NBER ID: w1278
Authors: V. Vance Roley; Carl B. Walsh
Abstract: Evidence on the relationship between unanticipated money and interestrates has been provided by two types of studies. First, several researchers have investigated the relationship using quarterly data. Second, a number of researchers have examined the effect of money announcement surprises on interest rates. In both instances, the correlation between money surprises and interest rates has usually been found to be non-negative.This paper first provides an interpretation of the correlation between unanticipated money and interest rates in terms of Federal Reserve policy objectives and operating procedures. Then, the correlation of unanticipated money and both short- and long-term interest rates is examined over weekly intervals, combining several aspects of the previous quarterly and announcement studies. In addition, the distinction between unpredicted and unperceived money also is considered.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unanticipated money (E49) | expected inflation (E31) |
| expected inflation (E31) | long-term interest rates (E43) |
| unanticipated money (E49) | long-term interest rates (E43) |
| Federal Reserve's discretionary changes in long-run targets (E52) | unanticipated money (E49) |
| unanticipated money (E49) | short-run reserve adjustments by banks (G21) |
| short-run reserve adjustments by banks (G21) | interest rates (E43) |