Elevated Option-Implied Interest Rate Volatility and Downside Risks to Economic Activity

Cisil Sarisoy
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Cisil Sarisoy: https://www.federalreserve.gov/econres/cisil-sarisoy.htm

No 2023-12-22, FEDS Notes from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Measures of uncertainty about U.S. short maturity interest rates derived from options have risen sharply since October 2021, reaching their highest levels in more than a decade. This note first uses survey-based measures of economic uncertainty to argue that this increase in option-implied measures likely reflect higher uncertainty about inflation, the associated monetary policy response, and the perceived resulting downside risks to economic activity.

Date: 2023-12-22
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfn:2023-12-22

DOI: 10.17016/2380-7172.3404

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