Working Paper: NBER ID: w2125
Authors: Richard Deaves; Angelo Melino; James E. Pesando
Abstract: Researchers, using the survey conducted by Money Market Services, Inc., have found that the anticipated component in the Federal Reserve's weekly money supply announcement is negatively correlated with the post- announcement change in market yields. We prove that eliminating a (downward) bias in the measure of anticipated money can, in theory, eliminate this puzzle, but that improving the efficiency of an already unbiased measure cannot. We find, using Canadian as well as U.S. interest rate data, that correcting the downward bias in the survey measure reduces, but does not eliminate, the role of anticipated money.
Keywords: Interest Rates; Money Supply; Federal Reserve; Market Yields
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated money supply changes (E41) | interest rates (E43) |
| anticipated money supply changes (E41) | post-announcement change in market yields (E43) |
| correcting downward bias in anticipated money measure (E41) | significance of anticipated money in explaining interest rate changes (E43) |
| significance of anticipated money (E41) | arbitrage opportunities (F31) |
| anticipated money during October 1979 to October 1982 (E65) | substantial returns (G12) |