The Impact of Money on Short-term Interest Rates

William Reichenstein

Economic Inquiry, 1987, vol. 25, issue 1, 67-82

Abstract: This study reviews empirical evidence from four research methods related to the impact of money on short-term nominal rates. The studies consistently fail to find evidence supporting the much hypothesized short-term, negative relationship between money and nominal rates since at least April 1975. Reasons for the absence of a negative relationship include the tendency of financial markets to anticipate corrective action by the Fed whenever M1 deviates from targeted growth ranges and a rapid adjustment of inflationary expectations to changes in money growth. Copyright 1987 by Oxford University Press.

Date: 1987
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