Working Paper: NBER ID: w1812
Authors: V. Vance Roley
Abstract: The response of interest rates to money announcement surprises is examined both theoretically and empirically in this paper. In the theoretical models developed, not only changes in operating procedures, but also reserve requirement systems, are found to potentially affect the response. Moreover, under the current two-week contemporaneous reserve requirements (CRR) adopted in February 1984, the responses in the first and second weeks of the two-week reserve maintenance period may differ. The empirical results generally conform to the predictions of the theoretical models. The response of the Treasury bill yield to money announcement surprises changed significantly following changes in either operating procedures or reserve requirement systems in October 1979, October 1982, and February 1984.
Keywords: Interest Rates; Money Announcements; Federal Reserve; Monetary Policy
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Money announcement surprises (prior to October 1979) (E49) | Federal Funds Rate (FFR) response (prior to October 1979) (E43) |
| Federal Funds Rate (FFR) response (October 1982 to February 1984) (E43) | Money announcement surprises (E49) |
| Money announcement surprises (E49) | Federal Funds Rate (FFR) response (October 1979 onwards) (E43) |
| Federal Funds Rate (FFR) response (October 1979 onwards) (E43) | Treasury bill yield response to money announcements (E43) |
| Operating procedures and reserve requirements (E52) | Interest rates (E43) |
| Switch to Contemporaneous Reserve Requirements (CRR) (E52) | Interest rates response to money announcements (E49) |