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The Effects of Inflation and Money Supply Announcements on Interest Rates

Thomas Urich and Paul Wachtel
The Journal of Finance
Vol. 39, No. 4 (Sep., 1984), pp. 1177-1188
Published by: Wiley for the American Finance Association
DOI: 10.2307/2327621
Stable URL: http://www.jstor.org/stable/2327621
Page Count: 12
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The Effects of Inflation and Money Supply Announcements on Interest Rates
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Abstract

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.

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