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Money Announcements, the Demand for Bank Reserves, and the Behavior of the Federal Funds Rate within the Statement Week

John Campbell ()

Journal of Money, Credit and Banking, 1987, vol. 19, issue 1, 56-67

Abstract: The effect of money stock announcements on the federal funds rate hasbeen attributed informally to the information conveyed by the announcements about aggregate reserved emand. This "Aggregate Information Hypothesis" explains the effect without ref erence to Federal Reserve intervention in the funds market. In this paper, the a uthor provides a formal model of the Aggregate Information Hypothesis under lagged reserve accounting. The model relies on imperfect information in the funds ma rket and on imperfect bank arbitrage of reserve demand between days of the week. Some stylized facts are presented about funds rate behavior in the period 1980-83. Copyright 1987 by Ohio State University Press.

Date: 1987
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