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The impact of inflationary news on money market yields and volatilities

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Abstract

This study investigates the impact of surprises in hourly wages, non-farm payroll, unemployment rate, and producer price index on the yields and volatilities of money market securities. The methodology is conducted in a framework that preserves the strong substitutability among the instruments. We find first the short-term interest rate nexus is inherently a steady state long-run phenomenon. Second, yield variability is fundamentally linked to the release of macroeconomic news that conveys important information on inflation. Third, results from the equality of variance tests suggest that volatilities on announcement days are significantly higher than non-announcement day volatilities across all securities.

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Authors and Affiliations

  1. Department of Finance and Real Estate, Colorado State University, 80523-1272, Fort Collins, CO

    Sanjay Ramchander

  2. Department of Economics and Finance, University of Texas-Pan American, 1201 W. University Drive, 78541-2999, Edinburg, TX

    Marc W. Simpson

  3. Department of Finance and Legal Studies, Indiana University of Pennsylvania, 324 Eberly Complex, 57051, Indiana, PA

    Mukesh Chaudhry

Authors
  1. Sanjay Ramchander
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  2. Marc W. Simpson
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  3. Mukesh Chaudhry
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Ramchander, S., Simpson, M.W. & Chaudhry, M. The impact of inflationary news on money market yields and volatilities. J Econ Finan 27, 85–101 (2003). https://doi.org/10.1007/BF02751592

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