The Response of Short-term Interest Rates and Exchange Rates to Weekly Money Announcements

M. Aynul Hasan and Hassouna Moussa

Canadian Journal of Economics, 1991, vol. 24, issue 1, 161-74

Abstract: The efficiency hypothesis for financial markets requires that only the unexpected portion of the growth rate of money-supply announcements be significant in the determination of short-term changes in interest and exchange rates. In this paper, the authors argue that, in the face of an unstable monetary policy, old information should also affect interest and exchange rate changes. This does not constitute a refutation of the efficient market hypothesis, because the unstable policy requires rational economic agents to learn. The authors test the proposition using weekly Canadian financial data over the period 1976-82 and find evidence to support it.

Date: 1991
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