Keywords: Monetary policy transparency, expectations, asset prices
Abstract: As recently as early 1994, market participants had to infer the stance of U.S.
monetary policy according to the type and size of the open market operations
conducted by the Federal Reserve's Trading Desk. Thus, investors were
exposed to uncertainty about both the timing and the motivation for monetary
policy actions. Since then, changes in disclosure practices regarding monetary
policy decisions have potentially mitigated both types of uncertainty. We
examine the effects of the greater openness and transparency of these new
practices on the way a wide array of financial market instruments respond to
unanticipated policy decisions. In general, the financial markets' response to
policy does not seem to be related to what the Federal Reserve says after a
surprise decision is announced or to when it decides to act. The invariance of
the response of asset prices to policy across time and announcement regimes
suggests that what the Federal Reserve says when it acts is of second-order
importance to the act itself.
Full paper (333 KB PDF)
Home | FEDS | List of 2000 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: March 17, 2000