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The Reaction of Interest Rates to Unanticipated Federal Reserve Actions and Statements: Implications for the Money Announcement Controversy

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  • Cook, Timothy
  • Hahn, Thomas

Abstract

This paper examines the reaction of long- and short-term interest rates to monetary polic y surprises that influenced market expectations of the future behavio r of the Federal Funds rate in the period after October 1979. The aut hors find that the relative reaction of long- and short-term rates t o policy surprises is similar to the relative reaction of these rates to money announcements. Consequently, they conclude that the large r eaction of long-term interest rates to money announcements in the per iod after October 1979 is consistent with the "policy anticipations hypothesis," which views this reaction as a movement in real intere st rates. Copyright 1987 by Oxford University Press.

Suggested Citation

  • Cook, Timothy & Hahn, Thomas, 1987. "The Reaction of Interest Rates to Unanticipated Federal Reserve Actions and Statements: Implications for the Money Announcement Controversy," Economic Inquiry, Western Economic Association International, vol. 25(3), pages 511-534, July.
    • Handle: RePEc:oup:ecinqu:v:25:y:1987:i:3:p:511-34
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    Cited by:

    1. Michael J. Fleming & Eli M Remolona, 1999. "The term structure of announcement effects," BIS Working Papers 71, Bank for International Settlements.
    2. Peter Hördahl & Eli M Remolona & Giorgio Valente, 2015. "Expectations and risk premia at 8:30am: Macroeconomic announcements and the yield curve," BIS Working Papers 527, Bank for International Settlements.
    3. Antulio N. Bomfim & Vincent Reinhart, 2000. "Making news: financial market effects of Federal Reserve disclosure practices," Finance and Economics Discussion Series 2000-14, Board of Governors of the Federal Reserve System (U.S.).
    4. Reinhart, Vincent & Simin, Timothy, 1997. "The market reaction to federal reserve policy action from 1989 to 1992," Journal of Economics and Business, Elsevier, vol. 49(2), pages 149-168.
    5. Marie Briere, 2006. "Market Reactions to Central Bank Communication Policies :Reading Interest Rate Options Smiles," Working Papers CEB 38, ULB -- Universite Libre de Bruxelles.
    6. Marcello Pericoli, 2013. "Macroeconomic and monetary policy surprises and the term structure of interest rates," Temi di discussione (Economic working papers) 927, Bank of Italy, Economic Research and International Relations Area.

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