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The Effect of U.S. Money Supply Announcements on Canadian Stock, Bond, and Currency Prices

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  • Warren Bailey

Abstract

This paper documents associations between weekly U.S. money supply releases and four price series from Canada's financial markets. Two significant results emerge. First, the Toronto stock index, Government of Canada bond prices, and Canadian short-term interest rates change with surprises in the announced level of U.S. M1 since the United States began targeting money growth in October 1979. These effects do not appear to be transmitted through Canadian monetary variables. Second, the Canada-U.S. exchange rate is uncorrelated with U.S. M1 surprises. This suggests that the Bank of Canada prefers to stabilize the exchange rate rather than the interest rate.

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  • Warren Bailey, 1989. "The Effect of U.S. Money Supply Announcements on Canadian Stock, Bond, and Currency Prices," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 607-618, August.
    • Handle: RePEc:cje:issued:v:22:y:1989:i:3:p:607-18
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    Cited by:

    1. repec:bla:germec:v:7:y:2006:i::p:189-210 is not listed on IDEAS
    2. Norbert Funke & Akimi Matsuda, 2006. "Macroeconomic News and Stock Returns in the United States and Germany," German Economic Review, Verein für Socialpolitik, vol. 7(2), pages 189-210, May.
    3. Pami Dua & Divya Tuteja, 2013. "Interdependence Of International Financial Market-- The Case Of India And U.S," Working papers 223, Centre for Development Economics, Delhi School of Economics.
    4. Bernd Hayo & Matthias Neuenkirch, 2012. "Domestic Or U.S. News: What Drives Canadian Financial Markets?," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 690-706, July.
    5. Mr. Norbert Funke & Mr. Akimi Matsuda, 2002. "Macroeconomic News and Stock Returns in the United States and Germany," IMF Working Papers 2002/239, International Monetary Fund.
    6. Kai Liu, 2014. "Dollar Hegemony and China's Economy," Cambridge Working Papers in Economics 1410, Faculty of Economics, University of Cambridge.

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