Working Paper: NBER ID: w1705
Authors: John Huizinga; Leonardo Leiderman
Abstract: This paper presents a new set of empirical regularities on the link between interest rates, money supply announcements and monetary base announcements. Among the main findings reported are: (i) unexpected increases in the announced monetary base have a significantly positive effect on interest rates during the period from October 1979 to October 1982; (ii) although unexpected money supply and monetary base announcements have the same impact on interest rates, they have different implications for the future behavior of the money supply and monetary base; (iii) the significant response of longer-term interest rates to unexpected monetary announcements is reflecting a response of current and expected future short-term rates -- i.e.term-structure premia are not altered by these announcements.
Keywords: Monetary policy; Interest rates; Money supply; Monetary base
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unexpected monetary base announcements (E50) | Different monetary developments (E49) |
| Unexpected monetary supply announcements (E59) | Different monetary developments (E49) |
| Unexpected increases in the announced monetary base (E50) | Interest rates (E43) |
| Unexpected money supply announcements (E59) | Interest rates (E43) |
| Monetary base announcements (E50) | Interest rates (E43) |
| October 1982 shift in Federal Reserve policy (E65) | Impact of monetary announcements on interest rates (E43) |
| Response of longer-term interest rates to unexpected monetary announcements (E43) | Adjustments in current and expected future short-term rates (E43) |