The nature and impact of the market forecasting errors in the Federal funds futures market
Kwamie Dunbar () and
Abu S. Amin
The North American Journal of Economics and Finance, 2015, vol. 31, issue C, 174-192
In this paper we examine the impact of the forecasting errors arising from a monetary policy shock arising in the Federal funds rate market. Our empirical results indicate that forecasting errors in the Federal funds futures market do have implications for the asset market's natural price discovery process, since expectations in this market affect long term interest rates and inflation. We also find that the price discovery process may be exacerbated if the policy transmission mechanism is more pronounced under a transparency objective because of the negative feedback loop mechanism. The results further show that the aggregate demand and inflation expectations channels appear to be much more pronounced under the Bernanke regime than Greenspan leading to a much stronger policy transmission. In fact a policy tightening through both channels would have a visibly stronger deflationary and employment impact under Bernanke relative to Greenspan.
Keywords: Federal funds futures; Federal funds rate; Monetary policy transmission; Forecasting errors (search for similar items in EconPapers)
JEL-codes: E32 E52 G10 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:31:y:2015:i:c:p:174-192
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