The impact of inflationary news on money market yields and volatilities |
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Authors: | Ramchander Sanjay Simpson Marc W Chaudhry Mukesh |
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Institution: | (1) Department of Finance and Real Estate, Colorado State University, 80523-1272 Fort Collins, CO;(2) Department of Economics and Finance, University of Texas-Pan American, 1201 W. University Drive, 78541-2999 Edinburg, TX;(3) Department of Finance and Legal Studies, Indiana University of Pennsylvania, 324 Eberly Complex, 57051 Indiana, PA |
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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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Keywords: | |
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