Money Announcements, the Demand for Bank Reserves and the Behavior of the Federal Funds Rate Within the Statement Week
NBER Working Paper No. 1806 (Also Reprint No. r0863)
The effect of money stock announcements on the Federal funds rate has been attributed informally to the information conveyed by the announcements about aggregate reserve demand. This "Aggregate Information Hypothesis" explains the effect without reference to Federal Reserve intervention in the funds market. In this paper I provide a formal model of the Aggregate Information Hypothesis under lagged reserve accounting.The model relies on imperfect information in the funds market, and on imperfect bank arbitrage of reserve demand between days of the week. Some stylized facts are presented about funds rate behavior in the period 1980-1983.
Published: From Journal of Money, Credit and Banking, Vol. 19, No. 1, pp. 56-67,(February 1987).