Money Supply Announcements and the Market's Perception of Federal Reserve Policy

Steven Strongin and Vefa Tarhan

Journal of Money, Credit and Banking, 1990, vol. 22, issue 2, 135-53

Abstract: This paper investigates the reason why innovations in money-supply announcements cause interest rates to change. The paper empirically discriminates between the liquidity premium and the expected inflation hypotheses by directly taking into account investors expectations regarding the Federal Reserve's monetary policy stance. The results support the liquidity premium hypothesis, and the model provides an explanation for the observed time variation in the response of interest rates to money announcement surprises. Copyright 1990 by Ohio State University Press.

Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:22:y:1990:i:2:p:135-53

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