Anticipation of Monetary Policy and Open Market Operations
by Seth B. Carpenter and Selva Demiralp
Federal Reserve Board Department of Economics, Koç University
Central banking transparency is now a topic of great interest, but its impact
on the implementation of monetary policy has not been studied. This paper
documents that anticipated changes in the target federal funds rate complicate
open market operations. We provide theoretical and empirical evidence on the
behavior of banks and the Open Market Trading Desk. We find a significant shift
in demand for funds ahead of expected target rate changes and that the Desk
only incompletely accommodates this shift in demand. This anticipation effect,
however, does not materially affect other markets.
JEL Codes: E5, E52, E58.
(PDF, 39 pages 552 kb)