M3 Surprises and Asset Prices

In this paper the relationship between unanticipated sterling (£M3) and a variety of asset prices is investigated for part of the UK's experience with monetary targeting. The unanticipated component of monetary growth is generated using Money Market Services (UK) survey data and an ARIMA model....

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Bibliographic Details
Published in:Economica (London) 1987-11, Vol.54 (216), p.505-515
Main Authors: MacDonald, R., Torrance, T. S.
Format: Article
Language:English
Subjects:
Coefficients
Economic expectations
Efficient markets
Error rates
Exchange rates
Foreign exchange rates
Interest rates
Market prices
Money markets
Money supply
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Summary:In this paper the relationship between unanticipated sterling (£M3) and a variety of asset prices is investigated for part of the UK's experience with monetary targeting. The unanticipated component of monetary growth is generated using Money Market Services (UK) survey data and an ARIMA model. It is demonstrated that the UK survey data are rational, in that they are an unbiased and efficient forecast, and that the market efficiently incorporates unanticipated money growth into asset prices. The sign of the unanticipated monetary component in our asset price equations tends to indicate that the Fisher (the inflation expectations) hypothesis is better supported during the sample period.
ISSN:0013-0427
1468-0335