What Fed Funds Futures Tell Us About Monetary Policy Uncertainty
Jean-Sebastien Fontaine ()
Staff Working Papers from Bank of Canada
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
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-61
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