Canadian Weekly Money Supply Announcements and Financial Market Reactions in the First Years of Targeting: A View of Market Perceptions of Bank of Canada Policy

Richard Deaves

Canadian Journal of Economics, 1991, vol. 24, issue 2, 282-99

Abstract: This paper demonstrates, using weekly data between 1976 and 1979, that unanticipated changes in the Canadian money supply exerted a significant impact on the foreign exchange and bond markets during the first years of the Bank of Canada's policy of targeting M1 growth. This finding, which is perhaps surprising in light of the apparent volatility of weekly changes in the Canadian money supply, is consistent with the efficient markets paradigm. After the empirical regularities are established, an interpretation is offered that focuses on market perceptions of the reaction function of the Bank of Canada.

Date: 1991
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