Interest Rates and Economic Announcements

on Federal Reserve data. These days, professionalsare preoccupied with inflation, the dollar and thehealth of the economy.’Another reporter points out the unsystematicnature of such interpretations with the wrycomment that[tihe trade deficit doesn’t matter as much anymore. At least, not to the stock market. At leastnot this month.’Do announcements of government statisticssystematically affect financial markets? There isa substantial literature on the relationship be-tween interest rates and stock prices and an-nouncements of the money stock. Overall, thisevidence supports the conclusion that announce-ments of the money stock had an important in-fluence on interest rates in the early 1980s.’This influence arose when the Federal Reservefirst announced in October 1979 that it woulduse the money stock as a target for monetarypolicy, then largely disappeared in 1982 and1983 when the Federal Reserve moved awayfrom monetary aggregate targeting.~Existing studies of the relationship betweeninterest rates or stock prices and announce-ments of other economic data find littleevidence that either is affected by these an-nouncements. For example, Pearce and Roley(1985) investigate the effect of unexpectedchanges in inflation and real activity on stockprices and find little response of stock prices.Hardouvelis (1987) examines this relationship forinterest rates and stock prices and finds thatthey are systematically affected only by an-nouncements of the money stock.One common aspect of these studies is thatthey examine subperiods associated withchanges in monetary policy. Changes in policyregimes provide an obvious basis on which toexpect changes in the effect of money stock an-nouncements on financial markets. There is noobvious reason, however, for changes in the ef-‘Wallace (1988).