Market Anticipations of Monetary Policy Actions

Poole, William; Rasche, Robert H.; Thornton, Daniel L.

doi:10.20955/r.84.65-94

Cited by 141 publications

(139 citation statements)

References 23 publications

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“…The estimates from previous studies that are reported in Table 1 are for part of the Greenspan chairmanship. The estimates in Table 2 or 3 for the part of the Greenspan chairmanship for which we have data are on the high end of the studies in Table 1, close to those of Poole et al (2002), line 11, for the earlier part of Greenspan tenure. 12 Effects of anticipated policy actions: when the 1-year interest rate is the dependent variable, a number of the coefficients on the anticipated component of the federal funds rate are significant; for the 10-year rate these coefficients are small and some are insignificant.…”

Section: Estimation Resultssupporting

confidence: 64%

“…Gurkaynak et al (2006) find that monetary surprises do not have a significant effect on the 10-year interest rate for the sample period 1998-2005, in contrast to the finding of Gurkaynak et al (2005a), using the same methodology for the sample period 1990-2002. The estimates from Poole et al (2002), line 10 of Table 1, show no significant effect of monetary surprises on interest rates with maturities beyond 1 year for the 1994-2001 period. Swiston finds no effect for monetary surprises in an update of Kuttner (2001) for the years 2000-2006.…”

Section: Interpretation and Conclusionmentioning

confidence: 89%

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Monetary policy and U.S. long-term interest rates: How close are the linkages?

Berument

Froyen

2009

Journal of Economics and Business

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The effect of monetary policy on long-term interest rates has been a question of interest in recent years. A number of papers, relying on single-equation estimation techniques, have presented evidence that long-term interest rates exhibit sizable and significant responses to unanticipated changes in the Federal Reserve's target federal funds rate. This paper examines these findings in light of conflicting findings from VAR studies, which indicate negligible effects of innovations in the federal funds rate on long-term rates. To address the issue we use a single-equation approach where unanticipated changes in the federal funds rate are measured as residuals from policy reaction functions. We also estimate VAR specifications, which incorporate information about the timing of changes in the Federal Reserve's target federal funds rate. Our single-equation estimates provide evidence of strong responses of long rates to unanticipated changes in the federal funds rate both for the Greenspan period and for a longer period back to the mid-1960s. It seems likely that estimated VARs for the post-1987 years are less successful in isolating monetary policy surprises than was the case for earlier years.

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Section: Estimation Resultssupporting

confidence: 64%

Section: Interpretation and Conclusionmentioning

confidence: 89%

Monetary policy and U.S. long-term interest rates: How close are the linkages?

Berument

Froyen

2009

Journal of Economics and Business

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“…Yields are expressed in basis points at annual rates and the three returns are expressed in daily rates in percentages by computing the di¤erences of the logarithms of the index with the result multiplied by 100. 9 All variables are demeaned. 10 Table 1 shows the standard deviations for yield changes, equity and the exchange rate returns for the three regimes: US event days, Australian event days, and nonevent days.…”

Section: Variablesmentioning

confidence: 99%

International monetary policy surprise spillovers

Craine

Martin

2008

Journal of International Economics

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On April 18, 2001 US Federal Reserve Open Market Committee (FOMC) surprised …nancial markets by lowering the Federal Funds Target rate 1 2 % between regularly scheduled FOMC meeting dates. Securities markets in the US and Australia responded. The US 30-Euro$ rate fell by 1 2 %.and US and Australian …ve year bond yields fell by about 13 basis points. Equity returns increased by 3% in the US and 1 1 2 % in Australia. This paper is the …rst to examine international monetary policy surprise spillovers and to estimate the response of security prices to unobservable monetary and nonmonetary surprises.Our estimates of the impact of domestic monetary policy surprises on domestic yields and returns are similar to other studies. The following results are new. US monetary policy surprises spill over and a¤ect Australian yields and equity returns. Australian monetary surprises do not spill over to the US. Nonmonetary surprises are more important in explaining the movements in longer maturity yields and returns than monetary policy surprises.

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“…To test the whether the market was aware that the Fed was targeting the funds rate before the late 1980s, Equation 1 was estimated partitioning target changes into those that occurred before 1991 and after 1990-the date identified by Poole, Rasche and Thornton (2002). The results, presented in Table 5, show that the response of the T-bill rate was small and only marginally significant before 1991; however, it was more than three times larger and highly significant after 1990.…”

Section: When Did the Market Know That The Fed Was Targeting The Fundmentioning

confidence: 99%

“…Hence, consistent with the conventional open market view of monetary policy, the Fed appears to exert considerable control over the federal funds rate. By mid-May, however, the funds rate was trading below the target and the market began to revise its expectations for the funds rate for June and beyond (see Poole, Rasche and Thornton, 2002, the appendix, for details).…”

mentioning

confidence: 99%