monetary policy aggregate uncertainty and the stock market the authors develop and analyze a simple general equilibrium model of asset pricing in a monetary economy where the growth rate in money is partially determined by the policy of the monetary authority their model implies that the relationship between stock prices and consumption risk is systematically dependent on the monetary policy regime indicates that a rise in the noise associated with a given future monetary policy unambiguously increases current stock prices and formalizes the geske roll 1983 explanation for the observed negative correlation between stock returns and inflation copyright 1995 by ohio state university press

the reaction of interest rates to unanticipated federal reserve actions and statements implications for the money announcement controversy this paper examines the reaction of long and short term interest rates to monetary policy surprises that influenced market expectations of the future behavior of the federal funds rate in the period after october 1979 we find that the relative reaction of long and short term rates to policy surprises is similar to the relative reaction of these rates to money announcements consequently we conclude that the large reaction of long term interest rates to money announcements in the period after october 1979 is consistent with the policy anticipations hypothesis which views this reaction as a movement in real interest rates

reassessing the effectiveness of industrial policy in indonesia can the neoliberals be wrong abstract the neoliberal interpretation of the indonesian state suggests that industrial policy was incoherent subject to rent seeking and irrelevant to indonesia s post 1966 development success a more nuanced micro historical analysis of the state s interventions demonstrates that this oversimplification misses political elite objectives to overcome the ekonomi kolonial by using the power of the state and selective intervention to create a strong integrated diversified and outward oriented industrial economy ekonomi nasional empirical analysis presented here suggests that indonesia has largely achieved this objective it also suggests that industrial policy has been more important than the neoliberal argument permits

money supply announcements and real economic activity abstract this paper derives testable implications of a model due to siegel 1985 in which interest rates react to announced innovations in the money supply solely because money announcements reveal information about real economic activity tests of these implications yield results inconsistent with the model in addition the results contradict the finding of huizinga and leiderman 1987 that interest rates tended to rise in response to unexpected increases in the monetary base from october 1979 to february 1984

indonesia s industrial policy and performance orthodoxy vindicated there is hardly an economic policy whether for the levying of income tax or an urban real estate tax or for tariff protection of domestic industry or for subsidies to depressed industries or for minimal regulation of foreign investment or of road traffic or for conservation of forests or for provision of rural credit to farmers or for priorities in investment credit by state banks or for social welfare services or development projects of every kind which whatever its economic or technical merits does not need to be weighed and often ruled out almost wholly on grounds of its administrative impracticability in the face of corruption h w arndt 5

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

the money supply announcements puzzle comment in a recent paper in this review 1983 bradford cornell presented a survey of existing literature on the empirical relationship between weekly money supply announcements made by the federal reserve and changes in the spot prices of several financial instruments at the time of the announcement cornell sought to unify and extend the work done in this area by estimating a number of relationships which bear directly on this issue among his main conclusions are that asset markets are efficient with re spect to money supply announcements since only the unexpected component of the announcement is correlated with price changes and that the unexpected compo nent of money supply announcements has a highly significant positive correlation with short term interest rates but only after the october 6 1979 change in fed policy p 651 both of these conclusions are at vari ance with results reported in similar studies by jacob grossman 1981 v vance roley 1982 and thomas urich and paul wachtel 1981 all three find that unanticipated announcements matter in periods before october 6 1979 and roley and urich wachtel find that anticipated announcements matter in at least some of their regressions this abstract was borrowed from another version of this item

economic news exchange rates and interest rates the paper esamines the post october 1979 response of exchange rates and interest rates to the new information contained in the first announcement of fifteen us macroeconomic series illarkets respond primarily to monetary news but also to news about the trade deficit domestic inflation and variables that reflect the state of the business cycle for all fifteen macroeconomic variables an increase decrease in interest rates is accompanied by an appreciation depreciation of the dollar which is consistent with models that stress price rigidity and absence of purchasing power parity the effect of economic news on asset prices has received increasing attention in the economic literature because an outcome of the efficient markets rational expectations hypothesis is that flesible asset prices change the moment new information about future fundamentals arrives in the market in the exchange rate literature the role of news has gained importance because structural models have failed to predict most of the variation in exchange rates during the 1970s see imeese and rogoff 1983 researchers were naturally led to investigate the types of news that make exchange rates so volatile and to utilize news in order to test which model of exchange rate determination is consistent with the floating eschange rate experience notable studies are those of dornbusch 1980 frenkel 1981 edwards 1982a b 1983 copeland 1984 and rose 1984 in this paper i also examine the effects of macroeconomic news on eschange rates but i adopt a different more direct strategy one that complements previous work avoids some of its shortcomings and promises interesting conclusions i examine the instantaneous response of exchange rates the moment a piece of economic news hits the market if one can isolate the exact time during a business day when news arrives it is straightforward to examine the response of exchange rates because financial data are continuously available the advantages of the present methodology are many first it is possible to identify the exact types of economic news and how they affect exchange rates second the simultaneity bias which plagues the previous literature on exchange rates and news is not present here the independent variables that represent news can be interpreted as causal the paper was presented at the 1985 meeting ofthe american economic association the author wishes to thank sebastian edwards r w hafer nicholas karamouzis andrew rose and two anonymous referees for helpful comments kim rupert of the money market services for providing the survey data soo kounne for able research assistance and barnard college for research support

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

the influence of fundamentals on exchange rates findings from analyses of news effects as we survey the literature of macroeconomic news in the foreign exchange market we can by now look back on nearly 30 years of research the first studies which analysed news effects on exchange rates were established in the early 1990s see for example dornbusch almost at the same time meese and rogoff published their influential paper revealing the forecasting inferiority in exchange rates of structural models against the random walk this finding has shocked the pillars of exchange rate economics and thus cast general suspicion on research focusing on fundamentals in this field the eventual rising popularity of event studies can partly be attributed to the re establishment of the raison d etre of exchange rate economics this work focuses on systematically surveying this literature with particular respect to its primary goal i e shedding light on the analytical value of fundamental research thus its major findings are first fundamental news does matter whereas non fundamental news matters to a lesser degree second news influences exchange rates via two separated channels i e incorporating common information into prices directly or indirectly based upon order flow third with a few exceptions the impact of fundamental news on exchange rates is fairly stable over time

does industrialization build or destroy social networks abstract this article estimates the relationship between changes in industrialization and changes in social networks measures in indonesia during 1985 97 using repeated cross sections of nationally representative surveys we analyze a rich set of social interaction measures including various measures of voluntary associational activity levels of trust and informal cooperation districts that experienced rapid industrialization showed significant increases in most measures of social interaction however districts that neighbor rapidly industrializing areas exhibited high rates of out migration significantly fewer community credit cooperatives and a reduction in mutual cooperation as assessed by village elders manufacturing growth can be thought of as a proxy for income growth here the findings are contrary to several recent claims regarding the role of social capital in economic development

the effect of unanticipated money on the money and foreign exchange markets abstract a number of studies have attempted to determine why unanticipated increases in the money supply are positively correlated with money market interest rates by examining the response of the foreign exchange market to unanticipated changes in the money stock they have found a significant positive relationship between unanticipated increases in the money supply and the foreign exchange value of the dollar and have interpreted this as evidence for the anticipated liquidity effect hypothesis however these results support this hypothesis only if both markets respond simultaneously to unanticipated changes in money this paper examines the cross market consistency of the response using six bilateral exchange rates and the treasury bill rate all measured over a narrow time interval the results show that in general these markets do not respond simultaneously to money announcements

stock prices money supply and interest rates the question of causality the purpose of this study is to examine the statistical relationship between the supply of money and stock price levels and between the level of interest rates and stock prices the current literature in financial economics offers differing opininon on each of these relationship this research addresses a significant aspect of this debate by examining the direction of causality between the money supply stock prices and interest rates using granger sims test for determining unidirectional causality we find that the relationship between the money supply and stock prices is characterized by a feedback system with money supply causing some of the observed variations in the stock price levels and vice versa with respect to the relationship between stock prices and interest rates the results are not as conclusive in this instance the causality seems to be mostly running from interest rates to stock prices and not the other way around

monetary mystique secrecy and central banking abstract the paper contains a discussion of the role of secrecy in the implementation of monetary policy it documents the federal reserve s defense of secrecy as argued in a recent freedom of information act suit the federal reserve s arguments are evaluated on the basis of economic theory theoretical papers related to the secrecy issue are reviewed the discussion highlights a number of potential benefits and costs of central bank secrecy and identifies some conditions under which secrecy could be socially beneficial

bear squeezes volatility spillovers and speculative attacks in the hyperinflation 1920s foreign exchange abstract this paper examines some of the characteristics of the foreign exchange market in the 1920s floating period nominal returns appear to exhibit properties consistent with asset prices on modern more well organized financial markets i e they appear to be well described by martingales and possess persistent time dependent heteroscedasticity in order to deal with the extreme kurtosis in the exchange rate series we use robust inferential methods to test for volatility spillovers and shocks that might effect subsequent mean returns apart from some particularly abnormal bear squeeze episodes the markets appear remarkably efficient

does social capital promote industrialization evidence from a rapid industrializer a new stylized fact in development economics is the importance of social capital in promoting economic growth this paper examines the effect of social capital on industrialization in indonesia we analyze a rich set of social capital and social interaction measures including voluntary associational activity and levels of trust and informal cooperation the main finding is that initial social capital does not predict subsequent industrial development across 274 indonesian districts though these findings are for only a single nation and may not apply everywhere they call into question recent claims regarding social capital and economic development

asymmetric impact of monetary surprises on exchange rate abstractthis paper examines the asymmetric response of exchange rate to monetary surprises after controlling the type direction and origin of the news as well as business cycle phase a new asymmetry is found in the response of the exchange rate to news surprises in specific the us dollar depreciates against major currencies as the response to the negative monetary surprises in the 2001 recession while the dollar appreciates responding to similar negative monetary surprises during the 2008 recession the paper further explores possible causes and finds that time varying status of the currency with higher financial returns may contribute to the new asymmetry

comparing time series and survey forecasts of weekly changes in money a methodological note measured as the difference between the announced change and the expected change derived from the money market services inc weekly survey of government securities dealers unlike other survey measures of expectations the most notable example of which is the livingston survey data these expectations are formed by active market participants consequently the survey s forecast made public before the fed s announcement of the actual change in the money stock is commonly thought to represent the market s expectation the concern in this paper is not with the impact of unanticipated money changes on nominal interest rates the purpose is to compare the relative forecasting abilities of the survey predictions and those obtained from a timeseries model this question is of interest because the weekly money series used in previous research includes certain abnormal weeks in which exogenous factors may significantly alter the series stochastic properties see for example cornell 1 urich and wachtel 9 thus the influence of these abnormal weeks weeks that include benchmark revisions changes in seasonal factors and weeks in which there is a social security effect is examined by comparing forecasting results for two samples one includes these weeks and the other deletes them following pearce 6 this approach allows us to test the hypothesis that the survey responses are at least weak form rational and to see how sensitive this test is to the sample of weeks used unlike previous studies we use two survey forecast series the median forecast made public prior to the announced change in ml and the mean series constructed from individual respondents forecasts zarnowitz s 10 examination of the asa nber survey forecasts indicates that the mean forecast is on average statistically superior to the median this finding is based on the idea that the mean forecast uses a more informationally diverse data set consequently it is

money supply announcements and interest rates does monetary policy matter abstract most current explanations of the effect of money supply announcements on the rate of interest center on central bank policy this paper analyzes a flexible price macroeconomic model where present and future monetary policy have no influence on either interest rates or real output but monetary data signal information about real economic activity which influences both short and long term real rates of interest the magnitude of the interest rate response is shown to depend on the difference in the income elasticities of currency and deposit demand and the relative size of monetary and real disturbances to the economy

interest rate dynamics and the term structure a note abstract the brennan and schwartz two factor model of the term structure is re examined using constant duration long term yields in place of the fluctuating duration consol yields and additional stability is achieved in the empirical estimations the model is then reformulated to examine more closely the relationship between changes in long and short rates of interest it is found that movements in the short rate of interest are related to movements in the long rate the spread between the long and short rates and the prior movement in the long rate the model is then tested for its out of sample predictive ability and found to possess a modest amount of predictive power

unanticipated interest rates bank stock returns and the nominal contracting hypothesis abstract the relationship between unexpected interest rate movements and bank stock returns is analyzed in the context of the nominal contracting hypothesis unanticipated changes in interest rates should influence individual bank profits and stock returns depending on the maturity characteristics of their assets relative to their liabilities this hypothesis is investigated by constructing portfolios on the basis of the nominal contracting positions of banks the main conclusion of this paper is that the wealth redistribution implications of the nominal contracting hypothesis is found to be unimportant in the determination of bank stock returns

stock prices and economic news this paper examines the daily response of stock prices to announcements about the money supply inflation real economic activity and the discountrate except for the discount rate survey data on market participants expectations of these announcements are used to identify the unexpected component of the announcements in order to test the efficient markets hypothesis that only the unexpected part of any announcement the surprise moves stock prices the empirical results support this hypothesis and indicate further that surprises related to monetary policy significantly affect stock prices there is only limited evidence of an impact from inflation surprises and no evidence of an impact from real activity surprises on the announcement days there is also only weak evidence of stock price responses to surprises beyond the announcement day this abstract was borrowed from another version of this item

can bank be a source of contagion during the 1997 asian crisis abstract this paper tests whether bank can be a source of contagion during the 1997 asian crisis using asset return data from a crisis country thailand in particular i examine whether thai banking sector can produce contagion effects in both conditional means and volatilities of its foreign exchange and stock markets during the crisis after controlling economic fundamentals the test results show that contagion in mean effects appear to be multidirectional since return shocks emanating from any one of the three markets can sweep across all markets but contagion in volatility effects are mainly driven by the negative return shocks originating in the banking sector overall the empirical evidence indicates that the past return shocks emanating from banking sector have significant impact not only on the volatilities of foreign exchange and aggregate stock markets but also on their prices suggesting that bank can be a major source of contagion during the crisis

the exchange market announcement effects of belgian discount rate changes abstract in this study we analyze the announcement effects of changes in the belgium discount rate on the foreign exchange market our methodology involves two steps first we estimate time series models up to the day preceding a discount rate change and use these models to forecast the exchange rates in a second stage we test whether the forecasting errors contain an announcement effect the results indicate that a destabilizing announcement effect of discount rate changes can be found on the official market for the german mark

the term structure spread and future changes in long and short rates in the g7 countries abstract according to the expectations hypothesis when the spread between long and short rates widens next quarter s long rate should rise in the united states however long rates decline instead of rising this anomaly is also present in canada the uk germany and japan four of the additional six g7 countries nevertheless in contrast to the us where long rates appear to overreact to expected future developments the anomalous short run movement of long rates in these other g7 countries is caused by an additive white noise error on long rates that does not materially affect the information in their term structure

portfolio preferences of foreign institutional investors the authors examine the relationship between foreign investment and the attributes of emerging market countries and firms in which investment is made their findings indicate that countries with higher levels of economic development and floating exchange rate regimes tend to have greater ability to obtain foreign capital after controlling for the country s level of economic development they find that firms in countries with stronger shareholder rights and legal framework attract more foreign capital the authors also find that foreign institutions allocate more of their assets to firms with better corporate governance after controlling for other country and firm attributes the main firm level measures of corporate governance are derived from accounting quality variables their results imply that steps can be taken both at the country and the firm level to create an environment conducive to foreign portfolio investment the analysis is based on a unique dataset consisting of equity positions of u s mutual funds in emerging markets

monetary policy and long term interest rates an efficient markets approach abstract this paper is an application of efficient markets theory to analyze empirically the relationship of money supply growth and long term interest rates this approach has the advantage over calier research on this subject in that it imposes a theoretical structure on this relationship that flows easier interpretation of the empirical results as well as more powerful statistical tests on the interest of ascertaining the robustness of the results many different empirical tests are carried out in this paper and they uniformly do not support the preposition that increases in the money supply are correlated with declines in long rates

gross capital flows and asymmetric information abstract this paper shows that the behavior of gross capital flows can identify the nature of information asymmetries in international equity markets information asymmetry between foreign and domestic investors implies a correlation between net flows and returns information asymmetry within groups of foreign and domestic investors implies that gross flows and absolute returns are correlated i find that the correlation between gross flows and absolute returns is stronger than the correlation between net flows and returns suggesting that information asymmetries within countries are more important than those between countries

the relation between stock prices and inflationary expectations the international evidence this paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971 80 the fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world using interest rates as a proxy for expected inflation our data provide consistent support for the geske and roll model whose basic hypothesis is that stock price movements signal negative revisions in inflationary expectations finally a weak real interest rate effect was found for some of these countries

domestic and international financial market responses to federal deficit announcements abstract this study examines the response of domestic and international financial variables to announced changes in federal deficit projections over the 1981 1994 period as observed in earlier studies rates on us treasury securities responded positively to announced increases in federal deficit projections new evidence shows that deficit effects are transmitted internationally with foreign long term interest rates also increasing in response to announced increases in us deficit projections the exchange value of the dollar tends to be positively related to announced changes in deficit projections but that result appears to be related to the degree of insulation of foreign financial markets from us financial markets finally the price of gold responded positively to announced changes in deficit projections taken together the results suggest that higher projected deficits raise real interest rates in part because of an increase in an inflation risk premium

exchange rates interest rates and money stock announcements a theoretical exposition abstract when the federal reserve announce a larger than anticipated weekly level of the us money stock m1 the dollar appreciates and short term interest rates increase because of an expected liquidity effect but long term interest rates and particularly long run forward interest rates increase because of an expected inflation effect the two effects are not mutually exclusive but coexist when market participants are not completely sure of the fed s policy rule and thus react in a weighted average manner with weights that reflect subjective probabilities about different federal reserve money growth policies

how markets process information news releases and volatility we examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets we find these announcements are responsible for most of the observed time of day and day of the week volatility patterns in these markets while the bulk of the price adjustment to a major announcement occurs within the first minute volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours nonetheless these subsequent price adjustments are basically independent of the first minute s return we identify those announcements with the greatest impact on these markets we examine the impact on interest rate and foreign exchange markets of scheduled macroeconomic news releases such as the employment report the consumer price index cpi and the producer price index ppi many market participants believe that such announcements have a major impact on financial markets indeed a small industry devoted to predicting the figures to be released in upcoming releases has evolved in recent years with the exception of the weekly money supply figures however the impact of such announcements on financial markets has received scant attention 1 this is doubly surprising given the considerable research interest in market volatility since these news releases are a potential source of much of this volatility consider for instance figure 1 as shown there prices in interest rate and foreign exchange futures markets are much more volatile between 8 30 and 8 35 a m eastern time et than during any other five minute trading period including

predictive power of weekly money stock announcements abstract the objective of this study is to test if the weekly money stock can help to predict the monthly money stock using the data in the period of 1974 to 1985 pitman s nearness measure and a statistic which is similar to the linear feedback statistic are used respectively for the qualitative and quantitative investigations other variables such as interest rates and stock prices are also considered in the model the results indicate that the weekly money supply provides little information concerning the monthly money stock

charts noise and fundamentals in the london foreign exchange market this paper presents some empirical evidence on the prevalence perceived importance and nature of chartist or technical analysis in the london foreign exchange market if noise traders see e g de long et al i987 are defined as those speculators who do not base their trading strategies on a consideration of market fundamentals then it clearly encompasses those traders who employ chart analysis i e those who base their strategies on the analysis and extrapolation of past price movements alone

money supply announcements interest rates and foreign exchange abstract this paper presents a test of the joint hypothesis that money supply announcements affect the real interest rate and that changes in the real interest rate affect the exchange rate in the short run the test results are consistent with the joint hypothesis for example it is found that announcement of an unexpected jump in the money supply is accompanied by an increase in interest rates and an appreciation of the dollar if the rise in interest rates was entirely due to higher inflationary expectations the dollar should not appreciate

commodity own rates real interest rates and money supply announcements abstract this paper develops a measure of the real interest rate that is based on commodity own rates the rate at which one can contract to exchange units of a commodity today for units of the commodity in the future we use this measure to study the impact of money supply announcements on the real interest rate we find that money shocks have little effect on one and three month real interest rates however there is a strong positive relation between money shocks and six and twelve month real interest rates

optimal currency hedge ratios and interest rate risk abstract the objective of this article is to provide a framework for the interpretation of the optimal currency hedge ratios on foreign investments taking into account interest rate risk this is made possible by using a continuous time setting in the spirit of merton 1969 we focus on the importance of the interest rate differential forward basis in setting the optimal currency hedge because of the influence of interest rates on exchange rates more specifically we consider two discount bonds a domestic and a foreign one which follow stochastic processes possibly correlated with the other state variables of the model it is shown that the optimal hedge ratio can be split into five components a a macro economic component which is a function of the volatility of the interest rate differential and its covariance with currency movements this term depends on the currency considered but not on the asset being hedged b an asset specific term which is directly related to the covariance of the foreign currency asset return with exchange and interest rate movements c a speculative term function of the investor s risk preference and of the conditional risk premium on the exchange rate and d two stochastic opportunity set hedging terms the analysis of the optimal hedge ratio is illustrated on the period december 1970 1989 for stock and bond investments in seven countries jel g15 f31

reserves announcements and interest rates does monetary policy matter the author provides evidence on the perceived existence of strong liquidity effect the analysis is based on the response of the term structure of interest rates to the weekly federal reserve announcements of bank reserves during the post october 1979 period it is shown that unanticipated changes in the mix between borrowed and nonborrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money a precise model is developed and tested during subperiods of nonborrowed and borrowed reserves targeting by the fed

the credit view financial announcements and interesr rate responses abstract proponents of the credit view have argued that aggregate commercial bank lending decisions have strong macro economic effects this view is in contrast to the monetarist view that it is sufficient to consider the liability side of the banking sector s balance sheet in analyzing the economic outlook in this paper we examine whether or not financial markets reacted to unexpected changes in aggregate commercial bank lending during much of the 1980s in contrast to the implications of the credit view no evidence of a significant reaction to such shocks is uncovered however there is evidence to suggest that unexpected commercial paper activity is important to financial markets but the sign of the association is the opposite of that predicted by the credit view

foreign institutional investment is governance quality at home important abstract this paper examines the investment preferences of foreign institutional investors investing in the u s market we analyse both firm and country level determinants that influence the foreign institutional investors allocation choices at the country level we find that the governance quality in a foreign institutional investor s home country is a determinant of their decision to invest in the u s market our findings indicate that investors who come from countries with governance setups similar to that of the u s invest more in the united states the investment levels though are more pronounced for countries with governance setups just below that of the u s our results are consistent with both the flight to quality and familiarity arguments and help reconcile prior contradictory empirical evidence at the firm level we present unequivocal evidence in favour of the familiarity argument foreign institutional investors domiciled in countries with high governance quality prefer to invest in u s firms with high corporate governance quality this effect is primarily driven by grey non monitoring institutional investors

monetary announcements and stock prices in israel abstract responses of stock prices to monetary announcements in israel are examined only the unexpected part of monetary injection announcements are found to have a significant impact on stock prices unlike findings for the u s this impact is positive

measuring changes in poverty a methodological case study of indonesia during an adjustment period analysis of the effects of policy changes on the poor is often hindered by the difficulties inherent in measuring poverty and comparing levels of poverty before and after policy changes this article outlines two techniques which can overcome many of these measurement problems stochastic dominance conditions which can facilitate a robust poverty ranking of distributions of living standards and a decomposable poverty index which allows measured changes in aggregate poverty to be disaggregated into their various components such as the changes among population subgroups and growth and redistributive components these techniques can be applied to a wide range of indicators of economic well being and poverty lines and to assumptions about the poor the approaches are illustrated using household survey data from indonesia before and after external shocks and the subsequent structural adjustment program in the mid 1980s the study finds that favorable initial conditions and pro poor pattern of growth enabled indonesia to maintain its momentum in poverty alleviation during the period

poundm3 surprises and asset prices in this paper the relationship between unanticipated sterling m3 m3 and a variety of asset prices is investigated for part of the uk s experience with monetary targeting the unanticipated component of monetary growth is generated using money market services uk survey data and an arima model it is demonstrated that the uk survey data are rational in that they are an unbiased and efficient forecast and that the market efficiently incorporates unanticipated money growth into asset prices the sign of the unanticipated monetary component in our asset price equations tends to indicate that the fisher the inflation expectations hypothesis is better supported during the sample period

market response to the weekly money supply announcements in the 1970s the hypothesis that the weekly announcement of the money supply affects interest rates is examined the announcement effect is interpreted as a policy anticipation effect that is an unanticipated increase in the money supply leads to an increase in interest rates in anticipation of future tightening by the federal reserve estimates of this effect with proxies for the unanticipated change constructed from a survey of money supply forecasts and an arima model indicate that a financial markets respond very quickly to the announcement and b the response was largest when policymakers emphasized the importance of the monetary aggregates financial market participants are careful observers of the weekly money supply announcement and generally agree that the announcement often leads to changes in interest rates this occurs because the announcement leads market participants to revise their expectations both of future federal reserve policy actions and of future economic conditions in this paper we examine the response of yields on treasury bills to the announcement of the money supply and the extent to which that response has varied in the last ten years money supply announcements may affect market interest rates in three ways first actual expansion of the money supply leads to lower interest rates through a liquidity effect however rapid monetary growth which is not anticipated leads market participants to expect the federal reserve to counteract such growth in the future as a consequence there may be a policy anticipation effect which causes higher interest rates in anticipation of future tightening furthermore prolonged rapid monetary growth also creates inflation and inflationary expectations which lead to higher interest rates thus there may exist a third effect the inflationary expectations effect which also leads to higher interest rates our interest in this paper is in the immediate market response to the weekly announcement of the money supply which as we argue below is most likely to be a policy anticipation effect the policy anticipation effect is best described by example suppose that the announced change in the money supply exceeds that which was expected by

the reaction of spot and forward rates to new information abstract this paper examines the impact of new information on the term structure of exchange rates in particular the response of spot and forward exchange rates to anticipated and unanticipated weekly u s and canadian money growth announcements and the speed of adjustment of the foreign exchange market to these announcements are investigated the results indicate that the unanticipated component of the announced changes in the u s money supply has an immediate negative effect on the foreign value of the u s dollar this is entirely consistent with the assetmarket theory of exchange rate determination that postulates that exchange rates immediately adjust to reflect new information the response of the forward market however appears to be weaker lending support to the overshooting hypothesis

common stock returns real activity money and inflation some international evidence abstract this paper tests whether the negative relationship between real stock returns and inflation in the united states is in fact proxying for a positive relationship between stock returns and real activity variables in six major industrial countries over 1966 1979 consistent with fama s proxy effect hypothesis we document a negative relationship between inflation and real activity and a positive one between real stock returns and real activity variables real activity variables dominate money growth rates and expected and unexpected inflation in explaining real stock returns a puzzling result that still remains is the positive role of money and the negative role of expected inflation in explaining these real stock returns in all major industrial countries

exchange rate theory and practice this volume grew out of a national bureau of economic research conference on exchange rates held in bellagio italy in 1982 in it the world s most respected international monetary economists discuss three significant new views on the economics of exchange rates rudiger dornbusch s overshooting model jacob frenkel s and michael mussa s asset market variants and pentti kouri s current account portfolio approach their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today including those of the european monetary system

firm and group dynamics in the small and medium enterprise sector in indonesia this paper discusses the role of clusters and subcontracting as factors in the evolution of small and medium firms in indonesia during the last quarter century it is argued that a number of such firms have become successful exporters of rattan furniture wood furniture and garments on the strength of subcontracting relationships with foreign investors and buyers as well as agglomeration economies achieved by clustering in selected locations examples are provided to show that clustered enterprises are more likely to be in the exports business and to adopt product and process innovations as compared to more dispersed firms public policy support for fostering subcontracting links and cluster formation is also discussed

are harvest forecasts news usda announcements and futures market reactions futures market price data for maize and soyabeans are used to examine reactions to us department of agriculture harvest forecasts these forecasts are widely known and reasonably accurate so failure to find significant reaction would indicate that the usda did not contribute additional news relative to information already possessed by traders various t tests f tests and nonparametric chi square tests indicate rejection of the null hypothesis of no significant difference between means of absolute values or variances of changes in closing prices on days following a usda announcement and other days thus the data indicate that significant information is contained in the forecasts

the informational efficiency of weekly money announcements an econometric critique studies of the weekly money announcement have found markets to be informationally efficient we demonstrate that this result apparently is related to one or more sources of bias and measurement error that have been introduced to the estimating equations of previous studies after correcting for these sources of bias and estimating the modified model over the samples employed in earlier studies we still find evidence to reject the hypothesis of informational efficiency an alternative explanation is that auxiliary assumptions imposed for empirical convenience introduce measurement error that affects standard tests of the efficient markets hypothesis

does corporate governance risk at home affect investment choices abroad abstract disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder and is prevalent in many emerging market economies and present in some developed countries at the same time international investors come from different countries whose home markets are characterized by varying degrees of control ownership disparity this paper studies whether this difference in investors home countries affects their portfolio choice in an emerging market it combines two unique data sets on ownership and control in business groups and investor stock level foreign investment in korea a key finding is that investors from low disparity countries disfavor high disparity stocks in korea but investors from high disparity countries are indifferent moreover investors from low disparity countries became averse to disparity only after the asian financial crisis these results suggest that the nature of corporate governance in international investors home countries affects their portfolio choice abroad and therefore these investors should not be lumped together in the analyses of their portfolio choice

the impact of monetary announcements on forward interest rates movements in term premia or expected future rates abstract evidence is presented on how the response of forward interest rates to money supply and monetary base announcements is decomposed into movements in term premia and expected future interest rates a significant movement of each component is found for at least one sample period

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

balance of trade announcements and asset prices influence on equity prices exchange rates and interest rates abstract this paper examines the informational impact of traded balance announcements on asset prices including equities currrencies long and short term debt instruments and financial futures this study finds that in the 1980s prior to the 1985 plaza agreement for international economic cooperation information in trade balance announcements seem to have influenced only interest rates however in the 1985 1987 period such announcements also influenced stock prices and currency values these influences intensity further in the 1987 1988 period thus asset prices are sensitive to news in trade balance announcements and this sensitivity seems to have increased significantly in recent years with important implications for asset pricing models and economic policy formulation jel f30

the changing influence of money and monetary policy on exchange rates foreign exchange dealers said the american currency got an additional boost after the federal reserve reported that the nation s money supply rose 700 million in the latest week a development that is likely to put upward pressure on interest rates most economists had been expecting a decline in the money supply figures the wall street journal 25 january 1982 14 i introduction the importance of the linkage between money and asset prices such as interest rates and exchange rates is now well understood friedman 1990 12 writes given the familiar dependence of imports and exports on real exchange rates together with the dollar s evident relationship to interest rates the combination of a larger foreign sector in the u s economy and flexible exchange rates has clearly opened new avenues for monetary policy to affect economic activity however the precise nature of the relationship between money and exchange rates has long been a topic for research in international economics with the adoption of a system of floating exchange rates by most of the industrialized countries in march 1973 and the development of the rational expectations efficient markets hypotheses attempts to model observed fluctuations in exchange rates have focused on incorporating the important role of expectations of particular interest to the research in this paper is the dornbusch 1976 overshooting model which provided the structural foundation for the work of engel and frankel 1984 in the money announcements literature in the money announcements literature researchers employed unanticipated money announcements defined as the difference between announced and expected m1 to examine the linkage between money and asset prices as hakkio and pearce 1985 point out the research on foreign exchange rates in this laboratory was motivated by mussa s 1979 empirical findings in support of the efficient markets theory i e changes in exchange rates are unpredictable and are largely the result of the impact of new information on expectations in this literature researchers commonly regressed changes in the exchange rate on unanticipated money over sample periods which coincided with different policy regimes at the federal reserve to determine if the coefficient on unanticipated money say b sub 1 varied from one policy regime to another overall their findings uncover a significant link between unanticipated money and exchange rates and the size sign and significance of b sub 1 varies from one sample period to another 1 while suggestive the apparent link between changes in b sub 1 and changes in fed policy regimes is difficult to evaluate absent a model which formally incorporates such a link 2 thus my objective in this paper is to develop a basic theoretical empirical link between fluctuations in b sub 1 and changes in fed policy regimes i begin by extending the important work of engel and frankel 1984 in section ii to incorporate a policy feedback parameter g sub 1 in the money supply process which will represent the rational expectation of the type of monetary control regime in place at the federal reserve at the time of a money announcement it is shown that the magnitude of the response of exchange rates to an unanticipated announcement is mainly driven by agents expectations of the federal reserve s response to the deviation of the actual money supply from a pre specified target in section iii the time varying response of the dollar german mark exchange rate to weekly unanticipated money announcements b sub 1t and the time varying policy feedback parameter g sub 1t which reflects the adjustment of the federal funds rate to money away from target are estimated on a weekly basis using these estimates the variation of the coefficient b sub 1t vis a vis the changes in g sub 1t is examined over the january 1978 to december 1982 sample period the results provide considerable support for the hypothesized link between parameters b

herding on noise the case of johnson redbook s weekly retail sales data recent models of herding suggest that speculators may rationally trade on information unrelated to fundamentals when their trading horizons are short this study provides an empirical example where this appears to be the case johnson redbook s weekly retail sales figures predicted bond returns for a short time after a significant number of bond traders began purchasing and trading on the data the significant relationship between the data and bond returns disappeared just after the wall street journal started to report it mean while there was little or no change in the relationship between the data and retailers stock returns perhaps because the data have long been followed by retail stock analysts johnson redbook s original investor clientele

us money supply announcements and pacific rim stock markets evidence and implications this paper documents variation across pacific rim countries in the response of equity values to us m1 announcement suprises we relate the difference across countries to measures of capital mobility export trade with the usa foreign exchange and money market arrangements and correlation with the us stock market we find that the response to us m1 suprises is best explained by the country s degree of integration with international capital markets the flexibility of the exchange rate and interest rates may also be significant while the evidence is supportive of the anticipated fed reaction theory of the effect of money announcement suprises the differing response ro m1 shocks across fed policy regimes remains unexplained

trade deficit announcements intervention and the dollar abstract the effect of u s trade deficit announcements on the dollar exchange rate from 1980 1988 is examined the announcement is found to affect the dollar only after mid 1984 central bank intervention does not appear to have had a consistent impact on the dollar on the day of the announcement

monetary policy and short term interest rates new evidence on the liquidity effect abstract there is evidence of a strong liquidity effect in the period october 1979 october 1982 when the federal reserve targeted the growth rate of m 1 and thus monetary surprises were more exogenous than they were in other periods

the impact of money on short term interest rates 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 ml deviates from targeted growth ranges and a rapid adjustment of inflationary expectations to changes in money growth

interest rates and monetary policy uncertainty abstract this paper analyzes a model in which optimizing households are uncertain about monetary policy and learn about it over time in this model the variance of changes in nominal and ex post real interest rates increases with the variance of the household s predictive distribution over money growth a positive relation between unexpected changes in nominal interest rates and the money stock results from monetary policy uncertainty finally if money growth covaries negatively with real wealth an increase in monetary policy uncertainty increases the expected real rate of interest and decreases the nominal rate of interest

discount rate changes and the foreign exchange market abstract changes in the discount rate can have associated announcement effects on the foreign exchange value of the dollar only if these changes are not anticipated by the market this paper provides evidence to support this contention specifically discount rate changes made for reasons other than technical adjustments have not been anticipated fully and consequently their announcements have had a significant impact on the dollar s exchange rate furthermore results are obtained that support the hypothesis that unanticipated discount rate changes alter inflationary expectations

the us monetary performance prior to the 2008 crisis this article uses a structural vector autoregressive svar approach to study the different shocks to the monetary performance in the two decades of the us economy prior to the 2008 financial crisis by using the federal fund rate as a measure of change in the monetary policy this study shows that interest rate expectation is informative about the future movement of federal fund rate and the anticipated monetary policy should be one of the crucial reasons in causing monetary and financial deterioration in the us economy this article discusses a possible conjecture of a low interest rate trap when a persistent and prolonged low interest rate regime led to financial instability

using financial prices to test exchange rate models a note the purpose of this note is to illustrate how tests of exchange rate models can be conducted using financial prices rather than macroeconomic data all empirical tests of exchange rate models have met with limited success so far a major problem encountered is the poor quality of the macroeconomic data used most of the data suffer from large measurement error or cannot even be measured directly for example these models often require measures of changes in expected real activity or in monetary policy such variables can only be poorly estimated from time series models on industrial production or money supply the innovation in this paper is to use financial prices such as stock prices instead of the traditional macroeconomic data there exists convincing empirical evidence that stock returns forecast changes in economic activity as measured by industrial production real growth in gnp employment rate or corporate profits fama 5 and geske and roll 8 in the domestic context stock prices have been used to test the relation between economic activity and inflation e g fama 5 geske and roll 8 and solnik 12 in the same spirit stock returns are used in this paper as proxies for changes in economic activity to test the relation between exchange rates and economic activity interest rates are determined by monetary policies and changes in interest rates are used in this article as indicators of monetary shocks the approach used is introduced in section i while the empirical results are presented in section ii the data cover the eight major western countries over the recent period of flexible exchange rates july 1973 to december 1983

does foreign direct investment lead to productivity spillovers firm level evidence from indonesia this paper examines whether spillovers from foreign direct investment fdi make any contribution to productivity growth in the indonesian chemical and pharmaceutical firms using plant level panel data the spillover effects from fdi are analyzed using a stochastic frontier approach and productivity growth is decomposed using a generalized malmquist output oriented index the results show positive productivity spillovers from fdi higher competition is associated with larger spillovers and domestic firms with r d gain more spillover benefits compared to those without r d fdi spillovers are found to be positive and significant for technological progress and positive but not significant for technical and scale efficiency change

monetary policy announcements and market interest rates response evidence from china abstract this paper examines the daily responses of market interest rates to three monetary policy announcements in china using the event study approach i find that the interest rate responses to announced changes in the regulated retail interest rate and the required reserve ratio are positive and significant at all maturities of interest rates but smaller at the long end of the yield curve by contrast market interest rates barely respond to the qualitative mpc announcements about the monetary policy stance these findings are robust to alternative econometric methods that correct for potential bias arising from violations of the identification assumption these findings suggest that the pbc should formulate its policy communication in a quantitative way

social security payments money supply announcements and interest rates abstract a monthly cycle existed in initially announced changes in seasonally adjusted m1 for a period extending at least from september 1977 to february 1984 this cycle was the source of systematic errors in the widely used money market services forecast of m1 such errors can induce a spurious relation between interest rates and expected changes in the money supply when the survey forecasts are corrected to eliminate systematic errors the apparent negative relation between interest rates and expected money supply changes disappears interest rates were not systematically related to either anticipated or unanticipated money supply changes during the period february 1984 to december 1986

direct foreign ownership institutional investors and firm characteristics in this paper we characterize foreign ownership using a dataset of ownership and attributes of swedish rms the analysis reveals that foreigners show a preference for large rms rms paying low dividends and rms with large cash positions on their balance sheets when we further analyze the preference for large rms we nd that market liquidity and presence in international markets measured through export sales or listings on other exchanges seem to characterize foreign holdings better than rm size alone foreigners also tend to underweight rms with a dominant owner importantly we demonstrate that most of the features associated with foreign ownership are driven by the fact that foreign investors typically are mutual funds or other institutional investors hence we identify an institutional investor bias rather than a foreign investor bias finally using ownership data on a country level we conclude that the results are particularly strong among u s investors who comprise the largest institutions among foreign investors 2001 elsevier science s a all rights reserved jel classixcation g1 g15