Reserves Announcements and Interest Rates: Does Monetary Policy Matter?

Gikas Hardouvelis ()

Journal of Finance, 1987, vol. 42, issue 2, 407-22

Abstract: The author provides evidence on the perceived existence of a strong liquidity effect. The analysis is based on the response of the term structure of interest rates to the weekly Federal Reserve announcements of bank reserves during the post-October 1979 time period. It is shown that unanticipated changes in the mix between borrowed and non-borrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money. A precise model is developed and tested during subperiods of non-borrowed and borrowed reserve targeting by the Fed. Copyright 1987 by American Finance Association.

Date: 1987
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