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What Fed Funds Futures Tell Us About Monetary Policy Uncertainty

Jean-Sebastien Fontaine ()

Staff Working Papers from Bank of Canada

Abstract: The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a “path” factor signaling information about future policy actions, which is filtered from federal funds futures data. The uncertainty is highest when it signals a loosening cycle. The uncertainty raises the risk premium in a loosening cycle, reducing the transmission of target changes to longer maturities. Our results trace the information content of federal funds futures to hedging demand.

Keywords: Asset Pricing; Financial markets; Interest rates (search for similar items in EconPapers)
JEL-codes: E43 E44 E47 G12 G13 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-61

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