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Market Response to the Weekly Money Supply Announcements in the 1970s

Thomas Urich and Paul Wachtel
The Journal of Finance
Vol. 36, No. 5 (Dec., 1981), pp. 1063-1072
Published by: Wiley for the American Finance Association
DOI: 10.2307/2327300
Stable URL: http://www.jstor.org/stable/2327300
Page Count: 10
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Market Response to the Weekly Money Supply Announcements in the 1970s
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Abstract

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.

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