The impact of economic news on expected changes in monetary policy

John S. Lapp and Douglas Pearce

Journal of Macroeconomics, 2012, vol. 34, issue 2, 362-379

Abstract: Asset prices may react to news through changes in expected monetary policy. We examine whether economic news directly affects expected changes in monetary policy, measured by changes in federal funds rate futures prices. Because these prices depend on monthly averages of the effective funds rate, the timing of FOMC meetings relative to news announcements is important and we derive a method of weighting the news that incorporates this timing. We find that the market raises (lowers) its expected change in the funds rate target after news that inflation was higher (lower) than expected or employment was stronger (weaker) than expected.

Keywords: Fed funds futures; Economic news; Monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:34:y:2012:i:2:p:362-379

DOI: 10.1016/j.jmacro.2012.01.009

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