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Developing a Market-Based Monetary Policy Transparency Index and Testing Its Impact on Risk and Volatility in the United States

Amir Kia ()
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Amir Kia: Department of Finance and Economics, Utah Valley University

No 05-02, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper extends the literature by developing an objective market-based index, which is dynamic and continuous and can be used to measure the monetary policy transparency for a country or, simultaneously, a series of countries. It was found that the agents in the money market are forward looking and that the more transparent the monetary policy is, the less risky and volatile the money market will be. Furthermore, during the tenure of Chairman Greenspan, the volatility and risk in the money market fell. The policy regime changes of adjusting the target rate by multiples of 25 or 50 basis points and including a balance-of-risks sentence in FOMC statements also resulted in a reduction in volatility in money markets.

Keywords: Monetary Policy Transparency; forward looking agents; risk; volatility; money market. (search for similar items in EconPapers)
Pages: 52 pages
Date: 2005-02-21
New Economics Papers: this item is included in nep-cba, nep-fin, nep-mac and nep-mon
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Published: Carleton Economic Papers

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Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:05-02

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