The Money Supply Announcements Puzzle: Comment

In a recent paper in this Review (1983), Bradford Cornell presented a survey of existing literature on the empirical relationship between weekly money supply announcements made by the Federal Reserve and changes in the spot prices of several financial instruments at the time of the announcement. Cornell sought to unify and extend the work done in this area by estimating a number of relationships which bear directly on this issue. Among his main conclusions are that asset markets are efficient with re­spect to money supply announcements since only the unexpected component of the announcement is correlated with price changes, and that the unexpected compo­ nent of money supply announcements has a highly significant positive correlation with short-term interest rates, but only after the October 6, 1979 change in Fed policy (p. 651). Both of these conclusions are at vari­ ance with results reported in similar studies by Jacob Grossman (1981), V. Vance Roley (1982), and Thomas Urich and Paul Wachtel (1981). All three find that unanticipated announcements matter in periods before October 6, 1979, and Roley and Urich-Wachtel find that anticipated announcements matter in at least some of their regressions