Working Paper: NBER ID: w2608
Authors: William C. Melton; V. Vance Roley
Abstract: The financial market's understanding of Federal Reserve behavior is used to examine recent changes in monetary policy. Changes in the level of interest rats in response to specific types of economic information are primarily considered. Differences in the volatility of interest rates across period provide additional evidence on changes in monetary policy regimes. The results indicate that monetary policy changed several times since 1980 with respect to either the Federal Reserve's targets, its desire to achieve its targets, or its operating procedures. The different regimes correspond to Federal Reserve statements about changes in policy. In this context, then, the evidence suggests that policy was credible.
Keywords: Federal Reserve; monetary policy; interest rates; financial markets
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's operating procedures (E52) | volatility of interest rates (E43) |
| unexpected changes in money supply (M1) (E51) | interest rates adjustments (E43) |
| Federal Reserve's targets (E52) | market behavior (D40) |
| changes in Federal Reserve's operating procedures (E52) | market behavior (D40) |
| economic announcements (E60) | interest rates (E43) |