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American Economic Review: Vol. 90 No. 3 (June 2000)

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Federal Reserve Information and the Behavior of Interest Rates

Article Citation

Romer, Christina D., and David H. Romer. 2000. "Federal Reserve Information and the Behavior of Interest Rates." American Economic Review, 90(3): 429-457.

DOI: 10.1257/aer.90.3.429

Abstract

This paper tests for the existence of asymmetric information between the Federal Reserve and the public by examining Federal Reserve and commercial inflation forecasts. It demonstrates that the Federal Reserve has considerable information about inflation beyond what is known to commercial forecasters. It also shows that monetary-policy actions provide signals of the Federal Reserve's information and that commercial forecasters modify their forecasts in response to those signals. These findings may explain why long-term interest rates typically rise in response to shifts to tighter monetary policy.

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Authors

Romer, Christina D. (U CA, Berkeley)
Romer, David H. (U CA, Berkeley)

JEL Classifications

E43: Determination of Interest Rates; Term Structure of Interest Rates
E52: Monetary Policy
E58: Central Banks and Their Policies


American Economic Review


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