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

Warren Bailey

Canadian Journal of Economics, 1989, vol. 22, issue 3, 607-18

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.

Date: 1989
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