Market perceptions of federal reserve policy and the weekly monetary announcements (original) (raw)

Federal Reserve Behavior Since 1980: A Financial Markets Perspective

1988

The financial market's understanding of Federal Reserve behavior is used to examine recent changes in monetary policy. Changes in the level of interest rates in response to specific types of economic information are primarily considered-Differences in the volatility of interest rates across periods provide additional evidence on changes in monetary policy regimes. The results indicate that monetary policy changed several times since 1980 with respect to either the Federal Reserve's targets, its desire to achieve its targets, or its operating procedures. The different regimes correspond to Federal Reserve statements about changes in policy. In this context, then, the evidencesuggests that policy was credible.

Federal Reserve behavior since 1980: a financial-market perspective

The Political Economy of American Monetary Policy, 1990

A measure of federal reserve credibility

Journal of Policy Modeling, 1994

We create two credibility variables. one depending on the correspondence between the Fed forecast of inflation and the private sector's forecast, the other between the Fed forecast and actual inflation. These are measures of credibility in terms of whether the public believes that the Fed will carry out its announced policy and whether the policy will have the effect claimed by the Fed. We tind that credibility was surprisingly high in the late 1970s. The Fed's change in regime led to little change in credibility. The credibility variables help reduce the forecast errors of the Phillips curvy in the early 1980s. 'See Greenspan (1989).

Financial Market Responses to Monetary Policy Changes in the 1990S

Contemporary Economic Policy, 2001

The operating target for monetary policy in the U.S. has changed from borrowings in the late 1980s to a target range for the fed funds rate to a specific fed funds target. In addition, secrecy about the policy target has largely disappeared and since 1994 policy targets have been announced immediately. We explore the impact of policy decisions on short-term interest rates as the policy announcements have changed. We find that the policy changes had a larger impact when the Fed moved to a specific emphasis on the fed funds rate. However, since the Fed began to announce the targets, policy changes have had a lesser effect on rates.

Market reaction to monetary policy nonannouncements

1998

This paper examines how Treasury security yields, stock prices, and federal funds futures rates respond on Federal Open Market Committee (FOMC) meeting dates when expected policy actions do not occur. The empirical results support the existence of nonannouncement effects on short-and intermediateterm yields. In particular, part of an expected policy action, measured using federal funds futures rates, is unwound when the action does not materialize. This partial unwinding is consistent with markets reacting to the surprise by postponing, but not eliminating, the possibility of a future policy action. We also find that only the response of near-term federal funds futures rates is larger after February 1994, when the Federal Reserve began making virtually all of its nonzero changes in the federal funds rate target at FOMC meetings. As a whole, our results suggest that monetary policy decisions can be informative to financial markets even when these decisions do not involve an overt policy action, and they support the view that market expectations of future policy actions are an important determinant of the behavior of interest rates.

Market perceptions of federal reserve policy and the weekly monetary announcements (original) (raw)

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