Thomas S. Torrance

LM3 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 United Kingdoms experience with monetary targeting using survey data. It is demonstrated that the U.K. survey data are r ational 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 (or inflatio n expectations) hypothesis is well supported during the sample period. Copyright 1987 by The Review of Economic Studies Limited.

Covered interest parity and UK monetary 'news'

In this note the effect of unanticipated sterling M3 announcements on the sterling-dollar covered interest parity relationship is investigated. It is demonstrated inter alia that unanticipated monetary announcements have a significantly positive effect on the one month euro-sterling interest rate, a significantly negative effect on the one month euro-dollar interest rate which in turn generates an expected exchange rate depreciation.