EconPapers    
Economics at your fingertips  
 

Futures prices as risk-adjusted forecasts of monetary policy

Monika Piazzesi and Eric Swanson

Journal of Monetary Economics, 2008, vol. 55, issue 4, 677-691

Abstract: Many researchers have used federal funds futures rates as measures of financial markets' expectations of future monetary policy. However, to the extent that federal funds futures reflect risk premia, these measures require some adjustment. In this paper, we document that excess returns on federal funds futures have been positive on average and strongly countercyclical. In particular, excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business-cycle indicators such as Treasury yield spreads and corporate bond spreads. Excess returns on eurodollar futures display similar patterns. We document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy shocks used in the literature.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (208)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-3932(08)00049-4
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Futures prices as risk-adjusted forecasts of monetary policy (2006) Downloads
Journal Article: Future prices as risk-adjusted forecasts of monetary policy (2004) Downloads
Working Paper: Futures Prices as Risk-adjusted Forecasts of Monetary Policy (2004) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:55:y:2008:i:4:p:677-691

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-31
Handle: RePEc:eee:moneco:v:55:y:2008:i:4:p:677-691