Abstract
This paper presents empirical evidence relating the announcement effects of US money supply and inflation (CPI and PPI) to Eurocurrency interest rates and the foreign currency markets (both spot and forward) for seven industrial countries over the period 1977–1982. The results indicate that unanticipated components of announced changes in money supply have a significant positive effect on Eurocurrency interest rates and a negative effect (implying dollar appreciation) on the spot exchange rates. Unanticipated changes in PPI have a positive significant effect on interest rates, a small surprisingly negative impact on spot exchange rates, and a positive effect on gold prices. The CPI has no effect on either market.
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