The Information Content of Discount Rate Announcements and Their Effect on Market Interest Rates

Journal of Money, Credit, and Banking, Vol. 20, No. 2, 1988

Federal Reserve Bank of Richmond Working Paper No. 86-5

40 Pages Posted: 24 Oct 2012

Date Written: September 30, 1986

Abstract

This paper presents evidence that throughout the 1973-85 period the Federal Reserve systematically used certain types of discount rate announcements to signal changes in its policy instrument, the Federal funds rate. Market participants understood the signals contained in discount rate announcements and used them to revise their expectations of the future path of the funds rate. These revisions in funds rate expectations caused movements in Treasury bill rates. The paper also presents evidence that discount rate announcements signaling changes in the funds rate had a strong effect on bond rates in the period since October 1979.

Suggested Citation

Cook, Timothy and Hahn, Thomas K., The Information Content of Discount Rate Announcements and Their Effect on Market Interest Rates (September 30, 1986). Journal of Money, Credit, and Banking, Vol. 20, No. 2, 1988, Federal Reserve Bank of Richmond Working Paper No. 86-5, Available at SSRN: https://ssrn.com/abstract=2120876

Thomas K. Hahn

Independent ( email )

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