The Information Content of Discount Rate Announcements Revisited

Cook and Hahn (1988) argue that discount-rate-change announcements were used by the Federal Reserve to signal market participants about movements in the federal funds rate throughout the 1973-79 federal funds rate targeting period. However, Roley and Troll (1984) and Smirlock and Yawitz (1985) argue that the Federal Reserve implemented policy changes exclusively through the federal funds rate during this period. Cook and Hahn found evidence of discount rate announcement effects on bill rates in the funds rate targeting period while Roley and Troll and Smirlock and Yawitz did not. This study presents evidence that supports the conclusion that the Federal Reserve's discount rate policy was different during the 1973-74 subperiod than in the remaining years of the federal funds rate targeting period. The inclusion of this subperiod in Cook and Hahn's study accounts for why their empirical results differ from those of Roley and Troll and Smirlock and Yawitz