 Overnight Index Swaps and Monetary Policy Expectations in the USKısacıkoğlu, Burçin No 19143, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: Extracting monetary policy expectations from financial market prices is a topic of interest for policymakers and researchers alike. Overnight index swaps provide a useful measure of monetary policy expectations since they are tied to expected short rates determined by monetary policy. This paper examines the usefulness of OIS rates as measures of policy expectations in the US. After formally testing for unspanned macro risks, we estimate a shadow rate term structure model with hidden macro risks. The decomposition of OIS rates into expectations and risk premia shows that risk premia are negligible in the OIS rates with maturities up to 1 year, but sizable in longer maturities. Running a horse race between model-implied expectations, fed funds, and Eurodollar futures shows that model-implied expectations forecast fed funds rates better than other measures. We argue that expected short rates have increased post-COVID because of higher long-term inflation expectations. We show that real and nominal risks increase OIS risk premiums. Keywords: Monetary Policy Expectations; Overnight Index Swap; Affine term structure models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19143 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.