Market Set-Up in Advance of Federal Reserve Policy Decisions

Dick van Dijk, Robin L. Lumsdaine and Michel van der Wel ()

No 19814, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers the uncertainty associated with upcoming Federal Open Market Committee (FOMC) announcements and the extent to which the market begins to set up for such announcements well before they actually occur. We demonstrate that markets set up well in advance of known announcement days; as a result, there is often less uncertainty in the period immediately preceding an FOMC announcement, despite greater volume of activity, as the market has already incorporated anticipated signals. We consider the relative importance of both macro announcements and central bank officials' speeches and congressional testimony in shaping market expectations. We find substantial evidence of anticipatory effects; these results are particularly relevant as the Fed develops its communication strategy to achieve an orderly exit from its program of quantitative easing.

JEL-codes: E43 E44 E58 G18 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-mac and nep-mon
Note: ME
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Published as Market Set-up in Advance of Federal Reserve Policy Rate Decisions Authors Dick van Dijk, Robin L. Lumsdaine, Michel van der Wel Economic Journal Volume 126, Issue 592 May 2016 Pages 618–653

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