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Does the Federal Reserve Respond to Errant Money Growth? Evidence from Three Monetary Regimes

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  • Hakes, David R
  • Gamber, Edward N

Abstract

This paper tests the hypothesis that the Federal Reserve responds to deviations between actual and targeted money growth with a corrective adjustment in their policy instrument. The authors divide the sample period of 1975-87 into three monetary regimes. Their results suggest that the Fed responded to errant money growth in the pre-1979 and the 1979-82 subperiods. However, the authors find no evidence that the Fed responded to errant money growth in the post-1982 subperiod. These results yield some insights into the source of the "money supply announcement puzzle" by lending support for what has been termed the "policy anticipation effect." Copyright 1992 by Ohio State University Press.

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  • Hakes, David R & Gamber, Edward N, 1992. "Does the Federal Reserve Respond to Errant Money Growth? Evidence from Three Monetary Regimes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 127-134, February.
    • Handle: RePEc:mcb:jmoncb:v:24:y:1992:i:1:p:127-34
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    Cited by:

    1. Edward N. Gamber, 1996. "The policy content of the yield curve slope," Review of Financial Economics, John Wiley & Sons, vol. 5(2), pages 163-179.
    2. Apergis, Nicholas & Miller, Stephen, 2004. "Macroeconomic rationality and Lucas' misperceptions model: further evidence from 41 countries," Journal of Economics and Business, Elsevier, vol. 56(3), pages 227-241.
    3. Choi, Woon Gyu, 1999. "Estimating the Discount Rate Policy Reaction Function of the Monetary Authority," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 379-401, July-Aug..
    4. Nicholas Aspergis & Stephen M. Miller, 2003. "Macroeconomic Rationality and Lucas' Misperceptions Model: Further Evidence from Forty-One Countries," Working papers 2003-26, University of Connecticut, Department of Economics.
    5. Gamber, Edward N. & Hakes, David R., 1995. "Do shifts in federal reserve policy regimes explain interest rate anomalies?," Journal of Macroeconomics, Elsevier, vol. 17(2), pages 227-240.
    6. Froyen, Richard T. & Waud, Roger N., 2002. "The determinants of Federal Reserve policy actions: A re-examination," Journal of Macroeconomics, Elsevier, vol. 24(3), pages 413-428, September.
    7. Shen, Chung-Hua & Hakes, david R., 1995. "Monetary policy as a decision-making hierarchy: The case of Taiwan," Journal of Macroeconomics, Elsevier, vol. 17(2), pages 357-368.
    8. Chung‐Hua Shen & David R. Hakes & Kenneth Brown, 1999. "Time‐Varying Response of Monetary Policy to Macroeconomic Conditions," Southern Economic Journal, John Wiley & Sons, vol. 65(3), pages 584-593, January.

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