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Working Paper 1983-016A

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"Discount Rate Changes and the Foreign Exchange Market"
by Dallas S. Batten, and Daniel L. Thornton

Changes in the discount rate can have an associated announcement effect on the foreign exchange value of the dollar only if these changes are not anticipated by the market. This paper provides evidence to support this contention. Specifically, discount rate changes made for reasons other than technical adjustments have not been anticipated fully and consequently, their announcement has had a significant impact on the dollar's exchange rate. Furthermore, results are obtained that support the hypothesis that unanticipated discount rate changes alter the expectation of the rate of future inflation.

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Category > International
Category > Monetary Policy/Macroeconomics
Author > Daniel L. Thornton