The general price level does not provide a sensitive indicator of whether monetary policy is tight or loose, because mostprices are sticky. Interest rates are free to move, but they are an ambiguous indicator of monetary policy: one does not know whether changes in the interest rate are due to changes in the expected inflation rate or the real interest rate.Commodity prices provide the ideal sensitive indicator.This paper has two distinct aims. First, a theoretical model of "over-shooting" in commodity markets is presented. A known change in the money supply is shown to cause an instantaneous change in commodity prices that is greater than the proportionate change that describes long-run equilibrium.Second, we take the occasion of the Fed's Friday money supply announcements to test the theory. We find that an unexpectedly large money announcement causes significant negative reactions in prices of six commodities. This supports at once the sticky-price or overshooting view, and the notion that the market has confidence in the Fed's commitment to correct any deviations from its money growth targets.

When the Fed announces a money supply greater than had been expected, interest rates rise. Why? One explanation is that the market raises its estimate of the future rates of money growth and inflation, and bids up nominal interest rates. We offer contrary evidence: on such days the dollar appreciates, not depreciates. An alternative explanation is that the market perceives the change in the money stock as a transitory fluctuation that the Fed will reverse in the future. The anticipated future tightening raises today's real interest rate, causes a capital inflow, and appreciates the dollar, the result in fact observed.

Bilson has described the empirical finding that the forward exchange rate overestimates the speed of return to equilibrium as a finding of ‘excessive speculation’, and has drawn implications for the volatility of the exchange rate. The present paper pursues this tack within the sticky-price monetary model made famous by Dornbusch. It is shown theoretically that if the market overestimates the speed of adjustment, the degree of overshooting is reduced. In this sense ‘excessive speculation’ leads to reduced volatility.

This paper offers a way of efficiently estimating the parameters in demand functions for mark and dollar assets. The technique imposes the constraint that the parameters, rather than being determined arbitrarily, are based on investors' optimizing behavior regarding expected returns and variances. It dominates some previous empirical applications of finance theory in the respect that the expected returns are allowed to vary from period to period, which is a necessary feature of any macro model. The constraint that the parameters are based on mean-variance optimization is also tested, and not rejected.

The failure of Uncovered Interest Parity is usually attributed to the idea that risk makes domestic and foreign bonds imperfect substitutes in investors' portfolios.  If so, as in the portfolio balance model, the the foreign-domestic return differential should be related to the supplies of foreign and domestic bonds that must be held.  It isn't.

The lack of success of the 1807–1809 Embargo by the United States has generally been attributed, first, to a lack of effective enforcement, and, second, to an inability to inflict greater economic damage on Great Britain than was suffered by the United States. This paper challenges both explanations. It is argued, first, that the Embargo did effectively reduce both countries to autarky. It is argued, second, that in autarky the relative price in Britain of agricultural products that had previously been imported rose by more than the relative price in the United States of manufactured goods that had previously been imported.

A long-short term spread is often used as a leading indicator of inflation of growth.  But every point along the yield curve offers information.  Thsi paper developed a formula for making use of the term structure along its entire length