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



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    • The authors are faculty members at Baruch College of the City University of New York and the New York University Graduate School of Business Administration, respectively. We would like to thank Stephen Figlewski, Kenneth Garbade, Abraham Gulkowitz, Michael Hamburger, David Resler, and James E. Pesando; the editor; and participants in seminars at Harvard University and the Bank of Israel for helpful comments; and Biblap Das for research assistance. This research was started while the second author was a visiting economist at the Federal Reserve Bank of New York.


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.