the information value of the fomc policy directive under the new operating procedures the federal reserve s federal open market committee fomc meets every one to two months to determine its monetary policy objectives over the near term at the conclusion of each meeting the fomc issues a policy directive to the system s account manager at the new york federal reserve bank specifying short run money growth targets and a federal funds interest rate tolerance range the policy directive is not disclosed to the public until after the next meeting when a new directive becomes effective in an earlier paper o brien 1981 evidence was presented suggesting that immediate disclosure of the fomc policy directives over the period january 1976 june 1979 would have improved the accuracy of market expectations of near term interest rate levels by no more than minor amounts in this paper we examine the information value of the fomc policy directives in predicting near term levels of interest rates urder the federal reserve s revised operating procedures adopted in late october 1979 but modified in late 1982 in the next section the interest rate information value of the fomc policy directive is discussed in terms of a simple money demand and supply model

defining the rebound effect abstract this paper gives rigorous definitions of the rebound effect not only in the well described single commodity case khazzoom 1980 the energy journal 1 4 21 40 but also for a multiple commodity case it is shown that the familiar laws for the single case do not hold for the multiple case the paper describes the state of the art of empirical estimation of the rebound effect with special focus on the estimates done for the netherlands we conclude that according to every definition empirical evidence shows that the re is probably small between 0 and 15

employment and output effects of observed and unobserved monetary growth the purpose of this paper is to present new evidence on the business cycle effects of contemporaneously observed and unobserved money growth the analysis builds on previous work in two ways first and most important in this paper the output and employment effects of unobserved money growth are estimated without maintained hypotheses about other sources of monetary nonneutrality this approach seems appropriate because the relation between money and business cycles is acknowledged to be not well understood for example see the discussion in grossman 1983 and barro 1984 earlier findings of neutral unobserved money growth involved test procedures that maintained either the neutrality of anticipated money growth barro and hercowitz 1980 or the neutrality of observed money growth boschen and grossman 1982 however the empirical measurement and neutrality of anticipated money growth are unsettled issues see mishkin 1982 while the empirical tests by boschen and grossman 1982 reject the neutrality of observed money growth since incomplete monetary information is a central aspect of many business cycle theories it is of considerable interest to estimate the economic impact of contemporaneously unobserved money growth without placing undue restnctions on the moneylbusiness cycle relation this approach also makes clear that tests of monetary nonneutrality due to incomplete information involve a comparison of coefficients on observed and unobserved monetary growth rather than simply a finding of positive significant coefficients on unobserved money growth

money supply announcements and real interest rates abstract current research on the relation between money and asset prices focuses on the reaction of asset prices to money supply announcements in this paper we use the real interest observed in the u k index linked bond market and the nominal interest rate observed in the nominal bond market to study the reaction of real interest rates and expected inflation to money surprises we find that monetary surprises have a strong effect on inflationary expectations we also find some evidence of a positive reaction of long term real interest rates to the m3 announcement

monetary innovations and interest rates this paper examines the effect of unexpected weekly changes in the money supply on financial markets l examination of financial market reaction to weekly monetary surprises provides information on how the economy reacts to monetary changes also the reaction to weekly monetary surprises may put real or imagined constraints on federal reserve behavior as noted by tobin a decade ago certainly the rate of growth of the money stock has become the customary capsule form for describing monetary policy and gauging how easy or tight it is for a time it seemed that public preoccupation with this number might itself be a market constraint on the federal reserve believers in monetarism would regard accelerated growth of m1 as the harbinger of more inflation and higher interest rates if such people were to dominate financial markets they would make it difficult for the fed to carry out a rate reducing expansionary policy tobin 1974 p 70 throughout the paper unexpected weekly changes in the money supply monetary innovations are measured by reported changes in the supply of money minus expected changes where expected changes in money are obtained from market survey data changes in current interest rates of various terms to maturity are used to measure the effects of innovations on financial markets

monetary policy regimes expected inflation and the response of interest rates to money announcements this paper examines the response of the term structure of interest rates to weekly money announcements estimated responses for both the pre and post october 1979 periods are first presented then two competing hypotheses involving the policy anticipations and expected inflation effects are formally specified and compared with the estimated responses both hypotheses are found to be consistent with the responses but they have sharply different implications about the federal reserve s short run monetary policy by exploiting these different implications additional empirical results focusing directly on the money stock process support the policy anticipations hypothesis

money supply announcements and interest rates another view in this paper i use a new approach to analyze the impact of money supply announcements on the bond market before 1980 the only available work on this subject consisted of a few unpublished papers by conrad 1978 sivesind 1978 and urich 1979 1 more recently published papers by grossman 1981 and urich and wachtel 1981 have appeared roley 1982 extends the grossman study to incorporate data after the federal reserve policy statement of october 6 1979 both grossman and urich and wachtel are primarily concerned with the question of money market efficiency using survey data made available by money market services of san francisco and data on treasury bill yields each finds that the market responds quickly to unanticipated changes in the money supply but that anticipated changes have no effect on interest rates in addition grossman finds that when he adds other variables such as past changes in the money

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

international market response to announcements of us macroeconomic data abstract this paper presents empirical evidence relating the announcement effects of us money supply and inflation cpi and ppi to eurocurrency interest rates and the foreign currency markets both spot and forward for seven industrial countries over the period 1977 1982 the results indicate that unanticipated components of announced changes in money supply have a significant positive effect on eurocurrency interest rates and a negative effect implying dollar appreciation on the spot exchange rates unanticipated changes in ppi have a positive significant effect on interest rates a small surprisingly negative impact on spot exchange rates and a positive effect on gold prices the cpi has no effect on either market

on the low frequency relationship between public deficits and inflation summary we estimate the low frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time varying vector autoregression model for us data from 1900 to 2011 we find the strongest relationship neither in times of crisis nor in times of high public deficits but from the mid 1960s up to 1980 employing a structural decomposition of the low frequency relationship and further narrative evidence we interpret our results such that the low frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after world war ii copyright 2015 john wiley sons ltd

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

economic surprises and the behaviour of asset prices some analyses and further empirical results this paper examines the implications of serial correlation in asset prices for market efficiency and announcement effect tests the impact of four types of economic surprise is examined after allowing for observed serial correlation in three asset price series

daily monetary impulses and security prices this paper uses swiss data to study the real long run effects of monetary policy daily unexpected changes in the monetary base are found to be negatively correlated with security price changes this result is unaffected when implicitly following geske and roll 1983 we try to measure the autonomous component of monetary policy by taking into account a reaction function of monetary policy to changes in real variables

us money announcements and covered interest parity the case of japan abstract this paper examines the effects of us money announcements on dollar and yen denominated securities in their respective onshore markets the effects are consdered over several periods corresponding to possible us and japanese policy regimes the consistency of the responses is further examined by testing whether the responses of dollar denominated securities yen denominated securities the spot yen dollar exchange rate and the forward yen dollar exchange rate violate covered interest parity given the results of previous studies the evidence suggests that restrictions on capital mobility in japan have not allowed complete international integration of japanese financial markets

deficits money and inflation abstract this paper examines the interrelationships between monetary and fiscal policy specifically it seeks to determine whether government budget deficits influence monetary growth using a money supply model originally developed by barro we find that deficits have had a significant impact on the growth of the u s money supply throughout most of the period since 1961 such a relationship need not always hold it depends on whether government deficits place upward pressure on interest rates and whether the central bank monetizes the debt in an effort to stabilize interest rates

the response of short term interest rates to weekly money announcements each friday at 4 10 p m est the federal reserve announces its estimate of the narrowly defined money stock for the statement week ending nine days previously these money announcements have become one of the main events in financial markcts if for no other reason than the fact that significant movements in interest rates have been associated with large unanticipated changes in the money stock moreover since the late 1970s interest rate fluctuations in response to money stock announcements have dramatically increased over the 1l 2 hour intervals spanning the weekly announcements for example the variance of the change in the threemonth treasury bill yield in the three years since october 1979 is more than thirty times larger than that of the previous two year period l two factors may account for a large portion of the increased volatility of shortterm interest rates first on october 6 1979 the federal reserve adopted a reserve aggregate approach to monetary control replacing a procedure that emphasized stability of short term yields second despite the greater emphasis placed on monetary control the variance of weekly announced changes in the money stock has risen by about 70 percent since late 1979 in turn if greater volatility of announced changes makes future changes more difficult to predict the volatility of unanticipated weekly changes in money would have also increased 2 thus if financial markets are efficient and if weekly money announcements contain relevant information larger unanticipated changes in money may have caused larger fluctuations in interest rates

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

news from the u s and japan which moves the yen dollar exchange rate abstract intra daily movements in the yen dollar exchange rate are examined in four non overlapping segments within each business day from january 1980 to september 1985 the results indicate that the dollar tended to appreciate in the new york segment and depreciate in the european segment in three of the four subsamples considered the tokyo segment made virtually no contribution to annual yen dollar rate movements the volatility of the exchange rate also differed across markets finally in examining the relative effects of news from the u s and japan explicitly u s money announcement surprises had the most consistent effects

optimal aggregation of money supply forecasts accuracy profitability and market efficiency we present a general procedure for aggregating expert forecasts which exploits regularities in the structure of information within the forecaster population specific information structures lead to aggregation methods which adjust for additive bias differences in individual accuracy and correlation among forecasts as an application we construct composite predictions of the weekly change in the money supply from forecasts made by twenty major securities dealers for which high positive correlation is found to be a significant characteristic due to instability in the information structure our methods cannot improve on the accuracy of a simple average in this case however they do capture information about the correlation among money supply forecasts which is not fully impounded in short term interest rates forecasts from our models accurately predict the direction of price changes for treasury bills and treasury bill futures after a money supply announcement the adjustment of prices to information in financial markets has been studied at length mostly from the perspective of the efficient markets hypothesis market efficiency tests typically look at the behavior of prices the end product

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

the reaction of stock prices to unanticipated changes in money a note much of the past work on the money stock market relationship centered on the question of whether money is a leading indicator of stock prices studies by sprinkel 22 homa and jaffee 10 and hamburger and kochin 8 supported the view that past increases in money lead to increases in equity prices the implication of this work was that investors could earn above normal proflts by using a trading strategy based on the observed behavior of the money stock this contradicts the efficient markets hypothesis which asserts that current asset prices reflect all available information so that no such trading strategy can exist subsequent research by cooper 3 pesando 17 rozeff 21 and rogalski and vinso 19 has shown that past money changes do not contain predictive information on stock prices upholding the efficient markets view this paper investigates whether the response of common stock prices to weekly money announcements is consistent with the efflcient markets hypothesis unlike the above research therefore the focus is on the very short run response of stock prices to both anticipated and unanticipated announced changes in money recent work by berkman 1 grossman 7 urich and wachtel 25 and roley 20 indicates that short term interest rates respond only to the unexpected component of the announcement with short term rates rising when the announced change in money exceeds the expected change berkman also examined the reaction of stock prices finding that an unanticipated increase in the money supply depressed share prices lynge 13 found that positive money announcements lowered stock prices but since he did not distinguish expected from unexpected money growth his results do not bear directly on the efficient markets issue in investigating the response of stock prices to weekly money announcements survey data on market participants forecasts of the announced weekly change

jevons paradox revisited the evidence for backfire from improved energy efficiency beginning with william stanley jevons in 1865 a number of authors have claimed that economically justified energy efficiency improvements will increase rather than reduce energy consumption jevons paradox is extremely difficult to test empirically but could have profound implications for energy and climate policy this paper summarises and critiques the arguments and evidence that have been cited in support of jevons paradox focusing in particular on the work of len brookes and harry saunders it identifies some empirical and theoretical weaknesses in these arguments highlights the questions they raise for economic orthodoxy and points to some interesting parallels between these arguments and those used by the biophysical school of ecological economics while the evidence in favour of jevons paradox is far from conclusive it does suggest that economy wide rebound effects are larger than is conventionally assumed and that energy plays a more important role in driving productivity improvements and economic growth than is conventionally assumed

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

balance of trade announcements and movements in exchange rates there is a growing literature on the effect of economic news on foreign exchange rates the effects of weekly money supply announcements on exchange rates have been empirically investigated by a number of researchers over a variety of periods 1 2 3 4 7 11 12 13 the response of foreign exchange rates to other types of economic information has also been studied for example dornbusch 5 uses innovations in the current account cyclical factors and interest rates frenkel 10 uses innovations in interest rate differentials edwards 6 uses innovations in money real output and real interest rates most recently hardouvelis 14 studies the market response of three interest rates and seven exchange rates to economic news on fifteen economic aggregates including monetary announcements inflation rate announcements and announcements reflecting the stage of the business cycle this paper studies short run movements in foreign exchange rates to the commerce department s monthly announcements of the u s balance of merchandise trade it extends previous studies of foreign exchange response to economic news in three ways first by studying the response to the trade announcement which occurs two months after the month to which the announcement refers the paper provides a more precise measure of the response to the news content of trade related announcements than earlier studies this for instance is an improvement over dornbusch s 5 definition of current account news as the innovation in the actual oecd organization for economic co operation and development biannual current account estimates second the paper studies not only movements in spot rates to the announcement but calculates the movements in forward premiums to this information by studying the response in forward premiums to the merchandise trade announcements the paper examines whether the information in the announcements implies effects that operate through capital flows and interest rates in addition to responses that operate through the flow of merchandise trade

the effects of inflation and money supply announcements on interest rates this paper examines the impact of the money supply and inflation rate announcements on interest rates survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements this distinction is used to test for the efficiency of the financial market response to the announcements of new information the results indicate that the unanticipated components of the announced changes in the producers price index and in the money supply have an immediate positive effect on short term interest rates the consumer price index announcement has no apparent effect there is no evidence of a delayed announcement effect however there is some indication of a liquidity effect of the money supply change on interest rates this takes place when reserves are changing and several weeks prior to the information announcement the effect of money supply announcements on interest rates has attracted considerable attention in both the academic literature and the financial press in the last few years it has been firmly established that unanticipated increases in the money supply lead to immediate increases in interest rates however there are several competing explanations for this phenomenon in the literature in this paper we present some additional empirical evidence which helps to distinguish between two of these hypotheses the policy anticipations and inflationary expectations hypotheses by examining the effect of money supply and inflation announcements on interest rates the positive effect on interest rates of announcements of unanticipated increases in the money supply was demonstrated by urich and wachtel 9 grossman 3 and roley 5 the announcement effect was interpreted in our earlier paper as a policy anticipations effect and has been interpreted by others e g cornell 1 as an inflationary expectations effect since both effects are in the same direction it is difficult to distinguish between them without additional evidence the policy anticipations effect is simply that an unanticipated increase in the money supply causes financial market participants to expect that the federal reserve will tighten the monetary reins in order to offset the increase in anticipation of future tightening there is a tendency for interest rates to increase the inflationary expectations effect is that an unanticipated increase

are announcement effects time dependent abstract the constancy assumption for the announcement response coefficient is relaxed and is modelled through a time varying kalman filter we find that the announcement effect is not time dependent for the post 1979 non borrowed reserves regime

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

federal deficits macro stabilization goals and federal reserve behavior the effects of federal deficits on federal reserve behavior as proxied by changes in the growth rate of the monetary base are analyzed in this study multivariate granger causality tests are employed in the analysis the deficit measure that is the focus of the analysis is the change in the real market value of privately held federal debt the tests indicate that the deficit granger causes the monetary base additionally concerns for financial market stability real output and exchange rate movements in the period of floating rates also affect federal reserve behavior

monetary policy and central bank financing of government budget deficits we examine the relationship between monetary policy objectives and the central bank financing of the government deficit in eight countries under fixed and flexible exchange rates we find using seasonally adjusted data that only the bundesbank and the federal reserve do not accommodate the government deficit in either exchange rate period furthermore the movement to monetary targeting reduces the linkage between monetary policy and government deficits using seasonally adjusted data only the banca d italia and the nederlandse bank possess significant accommodation of the government deficit during flexible exchange rates additional results are derived for other monetary policy objectives

the response of short term interest rates and exchange rates to weekly money announcements the efficiency hypothesis for financial markets requires that only the unexpected portion of the growth rate of money supply announcements be significant in the determination of short term changes in interest and exchange rates in this paper the authors argue that in the face of an unstable monetary policy old information should also affect interest and exchange rate changes this does not constitute a refutation of the efficient market hypothesis because the unstable policy requires rational economic agents to learn the authors test the proposition using weekly canadian financial data over the period 1976 82 and find evidence to support it

macroeconomic effects of budget deficits further international evidence abstract this paper investigates the effects of budget deficits on money growth inflation investment and real output growth using annual data from a sample of 32 countries the findings can be summarized as follows i deficits are generally not monetized and therefore they do not produce inflation via monetary expansions ii deficits are not inflationary even through their alleged aggregate demand effects iii deficits are negatively correlated with the rate of growth of real output but this may just reflect their countercyclical nature and iv increased deficits do appear to retard investment usually after one or two years jel e63 h62

inflation and government deficits there is a pronounced positive correlation of inflation andgovernment deficits in the united states since world war ii the purpose of this paper is to test the three leading explanationsof this correlation these three explanations are a a deficitincreases prices through a wealth effect b a deficit results inthe federal reserve purchasing debt thus increasing the moneysupply and prices and c expected inflation increases the deficit which is the change in the nominal value of bonds no supportis found for either of the first two hypotheses the results indi cate that expected government deficits have no significance forfuture inflation since world war ii the united states has experienced large federal government deficits and a sustained peacetime inflation three differentconnections between the deficits and inflation are prominent in theliterature the most direct connection between government deficits and inflationis that by increasing the real value of outstanding bonds and perceived netwealth a deficit can raise total spending and the price level this connec tion is also the most long standing and is suggested by metzler 1951 andpatinkin 1965 for example monetarists generally and buchanan and wagner 1977 in particularhave emphasized a different link between deficits and inflation they sug gest that the federal reserve purchases government bonds when the trea sury sells bonds thus increasing high powered money the money supply and the price level the federal reserve might behave this way for exam ple because it is attempting to hold down interest rates on governmentsecurities when deficits occur recently barro 1978 1979 has put forward a hypothesis that deficitsare a result of inflation rather than inflation being a result of deficits thegovernment deficit is the change in the nominal value of outstanding gov ernment bonds if the anticipated inflation rate increases then the nomi nal value of bonds must increase i e the government will run a deficit tokeep the same anticipated real amount of bonds all three of these possible connections between government deficitsand inflation are consistent with the observed positive correlation of defi cits and inflation the implications however are strikingly different con

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

asset returns discount rate changes and market efficiency the primary purpose of this paper is to reconcile the previous findings of discount rate endogeneity with the presence of discount rate announcement effects in securities markets the crux of this reconciliation is the distinction between technical discount rate changes that are endogenous and nontechnical changes which contain some informative policy implications in essence we attempt to separate expected discount rate changes from unexpected changes or equivalently the expected component of discount rate changes from the unexpected component if markets are efficient the former should have no announcement effects while the latter may be associated with an announcement effect accordingly the focus of the empirical analysis is on the interaction between discount rate exogeneity the specific monetary policy regime and accouncement effects in addition we examine whether the behavior of these markets in the postannouncement period is consistent with the rapid price adjustment implied by market efficiency

footprints on the earth the environmental consequences of modernity growing evidence demonstrating clear threats to the sustainability of the ecosystems supporting human societies has given rise to a variety of sociological theories of human environment interactions these environmental impact theories fall into three general perspectives human ecology modernization and political economy these theories however have not been empirically tested in a common analytic framework here a framework that relies on ecological principles is adopted and modified using a revised stochastic formulation of that framework and the most comprehensive measure of environmental impact to date the ecological footprint the factors driving the environmental impacts of societies are assessed the overall findings support the claims of human ecologists partially support the claims of political economists and contradict the claims of modernization theorists basic material conditions such as population economic production urbanization and geographical factors all affect the environment and explain the vast majority of cross national variation in environmental impact factors derived from neo liberal modernization theory such as political freedom civil liberties and state environmentalism have no effect on impacts taken together these findings suggest societies cannot be sanguine about achieving sustainability via a continuation of current trends in economic growth and institutional change authors

presidential politics budget deficits and monetary policy in the united states 1960 1976 this paper has focused on the extent to which the traditional tools of macroeconomic management in the united states monetary and fiscal policy have contributed to a political business cycle regardless of whether politicians can successfully influence real economic variables to their own ends the evidence presented here suggests that they tried and that they enjoyed some at least indirect aid from their independent monetary authorities in doing so several major conclusions emerge

monetary announcements and interest rate responses there is much evidence available showing that interest rates rise in response to unexpectedly large money stock m1 announcements 3 6 12 14 15 16 some studies that have examined the interest rate response to monetary base announcements however have failed to isolate any systematic response to these surprises 4 5 such a finding warrants further consideration many believe that the monetary base is a good summary measure of monetary policy others argue that the monetary base is an accurate indicator of future inflation 7 since both a policy anticipation effect and an inflationary expectation effect have been offered to explain why money stock announcements affect interest rates it would appear that monetary base announcements should also matter the nonexistence of a monetary base announcement effect is especially difficult to understand since the monetary base for a given statement week is announced one week prior to the money stock number for that same week this suggests the financial markets may be inefficient in processing information an important aim of the present paper is to consider the information content of monetary base announcements the first section of this paper argues that the monetary base may not be the pure monetary policy indicator some suggest in particular under a lagged reserve accounting system many of the subsequent innovations in the base can be foretold by earlier money stock announcements contrary to suggestions of earlier analysis the money stock announcements are likely to lead monetary base announcements also of importance is the recognition that the monetary base includes currency and discount window borrowings since the fed does not try to exercise short term control over either of these elements of the base their movements will not reflect policy actions the analysis of monetary base announcements suggests that federal reserve announcements of discount window borrowing however may carry important information to financial markets over and above the money supply announcement while discount window borrowings are included in the monetary base it is felt that this element alone carries important information to the financial community the third section of this paper investigates whether or not the unexpected element of these borrowing announcements has an

impact of interest rate surprises on islamic and conventional stocks and bonds abstract this paper studies the impact of interest rate news surprises on islamic and conventional stock and bond indices using a dataset which covers interest rate announcements and forecasts as well as stock and bond indices in three islamic and eight non islamic countris we find that interest rate surprises tend to have a smaller impact on the returns and volatility of islamic than conventional bonds because islamic bonds are structured to avoid explicit interest rates however interest rate surprises have about the same or bigger impact on the returns and volatility of islamic relative to conventional stocks despite the low amounts of cash and debt holdings of firms comprising islamic stock indices

are the economy and the environment decoupling a comparative international study 1960 20051 ecological modernization theory posits that even though economic development harms the environment the magnitude of the harmful link decreases over the course of development in contrast the treadmill of production theory argues that the strong relationship between environmental harms and economic development will remain constant or possibly increase through time to evaluate these competing propositions interactions between economic development and time are used in cross national panel analyses of three measures of carbon dioxide emissions the results vary across the three outcomes as well as between developed and less developed countries providing mixed support for both theoretical perspectives the authors conclude by discussing how both theories could benefit from engaging contemporary research concerning changes within the transnational organization of production and the structure of international trade and how these global shifts influence environment economic development relationships

stock prices and the effective exchange rate of the dollar the literature on the relation between stock prices and exchange rates is very poor and includes few studies that have argued that exchange rate changes do effect stock prices by relying on the portfolio approach to exchange rate determination it is argued that a change in stock prices could also have an impact on exchange rates i e there could be a two way relationship between exchange rates and stock prices granger concept of causality as well as cointegration technique are employed to support this conjecture the empirical results show that there is bidirectional causality between stock prices measured by s p 500 index and the effective exchange rate of the dollar at least in the short run the cointegration analysis reveals that there is no long run relationship between two variables

money as meta rule buchanan s constitutional economics as a foundation for monetary stability this paper explores james buchanan s contributions to monetary economics and argues these contributions form the foundation of a robust monetary economics paradigm while often not recognized for his contributions to monetary economics buchanan s scholarship offers important insights for current debates especially the renewed interest in narrow banking in the wake of the financial crisis we argue that the post 2007 crisis milieu creates a unique opportunity to recognize as buchanan did the vital role that money plays in the market as the grammar of commerce that recognition makes the need for more fundamental reform of our monetary regimes at the constitutional level more apparent making buchanan s work on monetary constitutions more relevant than ever before we then discuss how adopting buchanan s monetary framework can improve both monetary scholarship and institutions

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

syndicated euro credit sovereign risk assessments market efficiency and contagion effects this study investigates the informational efficiency of the syndicated euro credit market by analyzing the adjustment of spreads to news characterizing the state of sovereign borrowers creditworthiness in addition the potential for an interlinked crisis contagion effects between three major borrowing countries is examined that is contagion tests are conducted to see how news for one borrower affects the spreads charged to the others the evidence suggests that the euro credit pricing process has been informationally efficient however with respect to the contagion effects it was found that noncountry specific risk factors systematically influence country specific spreads

monetary policy and short term interest rates an efficient markets rational expectations approach this paper is an application of efficient markets rational expectations theory to analyze empirically the relationship of money supply growth and short term interest rates a hotly debated issue in the literature this approach has the advantage over earlier research on this subject in that it imposes a theoretical structure that allows easier interpretation of the empirical results as well as more powerful statistical tests the empirical results uniformly do not support the proposition that increases in money growth are correlated with declines in short rates the relationship between money supply growth and nominal interest rates is a hotly debated issue in the literature one view associated with keynesian structural macromodels has an increase in money growth leading at least in the short and medium runs to a decline in interest rates 2 an alternative view associated with milton friedman 6 7 indicates that interest rates might rise in response to higher money growth because there is a rise in inflationary expectations and hence a rise in interest rates through a fisher 5 effect

interest rates the forward premium and unanticipated money reply the relationship between the weekly money supply announcement and interest rates has attracted the attention of a large number of economists recent research by cornell 2 3 engel and frankel 5 gavin and karamouzis 6 grossman 7 hardouvelis 9 naylor 10 nichols small and webster 11 roley 12 roley and walsh 13 urich 14 and urich and wachtel 15 indicates a positive correlation between unanticipated changes in the announced money supply and interest rates the consensus on the relationship between unanticipated changes in money supply announcements and interest rates however disappears in the explanation of the phenomenon two competing explanations and thus two hypotheses are offered the main difference between the two hypotheses lies in the interpretation of future money growth conditioned on the information provided by the money supply announcement according to the first hypothesis also known as the expected liquidity hypothesis market participants believe that the federal reserve will promptly offset any deviations in the money supply from its target level this implies that an unanticipated increase in the money supply revealed by the announcement will be followed by a monetary tightening and hence an increase in real short term interest rates according to the second hypothesis also known as the inflation premium hypothesis market participants interpret the change in the money supply revealed by the announcement as a permanent deviation from the money supply target this implies that an unanticipated increase in the money supply will not be offset and hence will raise the inflation premium therefore according to the first hypothesis an increase in nominal interest rates caused by an unanticipated increase in the announced money supply is due to a rise in real interest rates according to the second hypothesis it is due to an increase in the inflationary premium in order to distinguish between the two hypotheses evidence has been presented from the foreign exchange and long term bond markets after analyzing the correlation between unanticipated money growth and the change in the level of spot exchange rates before and after the announcements cornell 2 3 engel and frankel 4 hakkio and pearce 8 and hardouvelis 9 find support for the expected liquidity hypothesis based on the correla

how organizational and global factors condition the effects of energy efficiency on co2 emission rebounds among the world s power plants the united nations intergovernmental panel on climate change ipcc the international energy agency iea and several nations suggest that energy efficiency is an effective strategy for reducing energy consumption and associated greenhouse gas emissions skeptics contend that because efficiency lowers the price of energy and energy services it may actually increase demand for them causing total emissions to rise while both sides of this debate have researched the magnitude of these so called rebound effects among end use consumers researchers have paid less attention to the conditions under which direct rebounds cause co2 emissions to rise among industrial producers in particular researchers have yet to explore how organizational and global factors might condition the effects of efficiency on emissions among power plants the world s most concentrated sources of anthropogenic greenhouse gases here we use a unique dataset containing nearly every fossil fuel power plant in the world to determine whether the impact of efficiency on emissions varies by plants age size and location in global economic and normative systems findings reveal that each of these factors has a significant interaction with efficiency and thus shapes environmentally destructive rebound effects

the policy anticipation hypothesis and the expected inflation hypothesis some new evidence using index linked bonds abstract using price index linked and conventional bonds issued by the uk government estimates of expected inflation and the expected real interest rate are derived these estimates are employed to investigate the relationship between components of the nominal interest rate and surprise monetary change the empirical results support the expected inflation hypothesis rather than the policy anticipation hypothesis

market perceptions of federal reserve policy and the weekly monetary announcements abstract in october 1979 the federal reserve altered its operating procedures emphasizing control of the growth rate of the money stock was the fed able to gain credibility in the market the paper investigates this question by examining the reactions of spot and expected future exchange rates foreign interest rates and long run domestic forward interest rates to the weekly federal reserve announcements of m l both before and after october 1979 the empirical evidence points out that the fed did gain credibility but was unable to establish full credibility the market reactions are consistent with the hypothesis that market participants attached a positive probability to the event that the fed may at some point in the future abandon its money stock targets

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

the evolutionary role of toughness in bargaining the experimental evidence on the endowment effect kahneman et al j polit economy 98 1990 1325 1348 and the self serving bias in negotiations babcok and loewenstein j econ perspect 11 1997 1337 1343 suggests that individuals enter a tough state of mind when they have to make a stand vis a vis somebody else in this work we show how a toughness bias in bargaining may indeed be evolutionary viable when the inherent toughness of the bargainer is observed by the opponent this opponent will adjust his behavior accordingly in a way which may enhance the actual payoff of the biased bargainer suppose then that a population consists initially of individuals with different inherent degrees of toughness or softness they are often matched at random to bargain and biases which are objectively more successful tend to appear more frequently in the society we characterize a salient class of bargaining mechanisms under which the population will consist asymptotically of individuals with some moderate degree of toughness

the effect of relative monetary surprises on spot exchange rates this paper examines the hypothetical relationship between us and canadian monetary surprises and the behaviour of us canadian spot exchange rates past studies have found that positive us monetary surprises were correlated with an appreciating us dollar in foreign exchange markets in this paper it is argued that monetary surprises in the us must be measured relative to foreign monetary innovation rather than in the conventional absolute sense when examining their impact on exchange markets rational investors consider expected returns and risk differentials in the us and local markets jointly in determining whether to be net buyers or sellers of us dollars the monetary actions of both the fed and the central bank operating in the local foreign economy will be considered in the foreign exchange market because of the close synchronization between the weekly money supply announcements in canada and the us it is possible to examine whether the relative or absolute us monetary surprise is more signifi

if homo economicus could choose his own utility function would he want one with a conscience reply in my model of the evolution of honesty 1 i assumed the existence of a signal a blush perhaps extreme values of which served to identify some individuals as being honest with certainty joseph harrington notes that without this assumption honest individuals have difficulty invading a population initially dominated by defectors for readers who do not wish to work through the algebra in his comment the argument is easily summarized in nontechnical terms suppose two honest mutants a and b arrive in an uncountably large population consisting entirely of dishonest persons and suppose that the probability that an honest person exhibits an intense blush is say 0 999 while the corresponding probability for everyone else is only 0 001 when a sees an intense blush on the face of b what will then be his estimate of the probability that b is honest assuming that a knows the laws of elementary probability and corrects for the base rate of honest persons in the population it will be zero when virtually everyone in the population is dishonest even a person with an intense blush will be pegged as dishonest provided that even the smallest fraction of dishonest persons also shows an intense blush with

inflation s negative effects on real stock prices new evidence and a test of the proxy effect hypothesis the present study examines the effects of inflation on real stock prices using an error correction model of the s p 500 inflation is shown to have a negative and significant impact in a variety of model specifications the study also investigates whether the observed negative relation arises because inflation proxies for more fundamental relations between stock prices and either future output relative price uncertainty or inflation uncertainty the evidence reveals that inflation does not merely proxy for those other factors and thus the proxy effect hypothesis in its various forms is rejected

the response of interest rates to the federal reserve s weekly money announcements the puzzle of anticipated money abstract researchers using the survey conducted by money market services inc have found that the anticipated component in the federal reserve s weekly money supply announcement is negatively correlated with the post announcement change in market yields we prove that eliminating a downward bias in the measure of anticipated money can in theory eliminate this puzzle but that improving the efficiency of an already unbiased measure cannot we find using canadian as well as u s interest rate data that correcting the downward bias in the survey measure reduces but does not eliminate the role of anticipated money

a note on economic news and intraday exchange rates abstract measured with intraday data in a 1987 1991 sample period the mark dollar exchange rate was affected by unanticipated information about the trade deficit and the consumer price index the exchange rate showed no significant response to news about money supply industrial production the producer price index or unemployment trade deficit surprises were negatively correlated with the value of the dollar as expected cpi surprises showed a positive correlation as would be predicted by sticky price models of exchange rates the market s reaction to the 8 30am trade deficit announcement was complete by 9am but the market s response to the cpi announcement was not as immediate no significant reaction had occurred by 9am and the spot price did not fully digest the information until 1pm significant responses were present in the 9am 11am and noon hours alternate measures of currency returns failed to explain this delayed response

the signalling role of base and money announcements and their effects on interest rates abstract this paper demonstrates that unexpected changes in the announced monetary base have an impact on interest rates above and beyond the impact of unexpected changes in the announced money supply in addition both money supply and monetary base announcements are shown to have a significant signalling role for subsequent changes in monetary aggregates however in contrast to several leading hypotheses it appears that the observed link between monetary announcements and interest rates is not attributable to the signals that announcements provide about the subsequent behavior of money and the base

learning and the exchange rate exchange rate responses to money announcements in the early 1980s abstract the paper develops a monetary model of exchange rate determination with transitory monetary shocks and bayesian learning the model implies that exchange rate responses to monetary surprises are time varying and asymmetric furthermore the two variables become increasingly negatively correlated as beliefs converge an empirical section reexamines the evidence of dollar exchange rate responses to monetary announcements in the 1979 1984 period during which two monetary reforms took place in the usa there is strong support for the presence of learning behavior during the october 1979 to october 1982 period in the german mark and japanese yen equations

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

the relationship between inflation and the budget deficit in turkey this article analyzes the empirical relationship between inflation and the budget deficit for the turkish economy by a multivariate cointegration analysis a single equation model shows that the scaled budget deficit as well as income growth and debt monetization significantly affects inflation in turkey the conditional model of inflation is constant and it encompasses a previously estimated model

the structure of expectations of the weekly money supply announcement abstract this paper examines the structure of expectations of the weekly money supply announcement in the late 1970s the data used are from a weekly telephone survey of money market participants the rationality and structure of expectations are explored with the data organized in three ways the mean response to each weekly survey the pooled sample of individual responses and time series of responses by each individual in the survey the effect of data aggregation on rationality tests is investigated the structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data

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

commodity prices money surprises and fed credibilit strict monetarist theory in an extreme form holds that excessive money growth or the expectation of future money growth shows up immediately in the rapid inflation of goods prices however it is widely argued that for most goods prices are in fact sticky in the short run and reflect money growth only in the long run if one seeks a sensitive market measure of the perceived looseiless or tightness of monetary policy one must look elsewhere than at the general price level interest rates being determined in quickly adjusting financial markets are free to respond immediately to expectations regarding monetary policy in 1981 and 1982 every friday at 4 10 p m eastern standard time the federal reserve board would announce the money stock for the week ending nine days previously if the announced money stock was different from what the market had been expecting interest rates generally jumped in the same direction clearly they were responding to revisions of the expected future path of the money stock but nominal interest rates are an ambiguous indicator of expectations on the one hand an announced increase in the money stock may be received by the market as indicating a higher

the commitment effect in belief evolution abstract in this note we establish that rational demand expectations will typically not evolve in an evolutionary model in an evolutionary model beliefs act like a commitment device to more aggressive behavior this commitment effect has the same direction for strategic substitutes and complements and fades away in large markets

the information content of weekly money supply announcements this paper analyzes the information content of weekly money supply announcements and the use of this information in the market determination of interest rates a short term rational expectations model of the financial market is constructed which incorporates the reaction of the federal reserve to deviations from target money supply and provides a context for analyzing the impact of announcements in the model the federal reserve attempts to maintain target growth rates in the money supply by compensating for past deviations from target announcements which contain an unanticipated movement in the money supply lead the public to expect that the federal reserve will change the rate of growth in the short run to compensate the revision of expectations about future short term money supply leads the public to revise their expectations about short term interest rates the implications of the model are empirically tested using data from a survey of expected changes in the money supply and u s treasury bill data the results support the implications of the model that is weekly money supply announcements do contain new information for the market determination of interest rates and it is only the unanticipated component of the announcement which is important

deficits money and inflation comment abstract this paper re examines the fiscal policy money growth linkage analysed by hamburger zwick 1981 in this journal newly revised national income accounts data are employed unlike hamburger zwick we do not find any strong evidence of a positive federal budget deficit money growth relationship over the period 1961 1974 when the estimation period is extended to 1976 and then to 1978 the results suggest no relationship between deficits and money growth

forecastable money growth revisions a closer look at the data the data for preliminary and revised u s money growth data are reexamined the findings contrast with those of the previous literature which has concluded that the data revisions behave like classical measurement errors this paper finds that the revisions are forecastable which contradicts the random measurement hypothesis as well as the efficient forecast hypothesis although ill behaved in this manner it is possible that the announcements represent observations rather than forecasts however the evidence suggests that they are a mixture of the two this finding offers a potential explanation for the failure of the data to show significant real effects of money growth revisions

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

interaction between central bank behaviour and fiscal policy the us case federal reserve behaviour is analysed using a model which incorporates an effect an effect of iscal pressure on monetary policy formulation incentive structures are hypothesized to be such that the central bank plans over a longer horizan than that relevant to the administration with the cyclically adjusted deficit proxying for fiscal pressure from the administration the response to the deficit then plays an interactive role in affecting the trade off weights applied to the competing goals of monetary policy the model performs well for the usa and provides a pattern of policy that is stable over the full 1961ndash 83 period

the impact of macroeconomic surprises on spot and forward foreign exchange markets abstract this paper evaluates the effects of surprises in 23 types of macroeconomic announcements on foreign exchange rates and on the forward premium several findings emerge first as in the balance of payment framework announcements that convey a decline in consumer demand increase foreign exchange rates second the ppp hypothesis is rejected in favor of portfolio balance effects in determining exchange rates third the behavior of forward premiums is consistent with covered interest rate parity fourth exchange rates respond to announcements related to consumer demand inflation and interest rates but not to the announcements directly related to the general strength of the economy finally among the news releases considered surprises in the treasury budget trade balance and capacity utilization have the strongest influence in the currency market