EconPapers    
Economics at your fingertips  
 

FOMC Communication Policy and the Accuracy of Fed Funds Futures

Menno Middeldorp ()

No 11-13, Working Papers from Utrecht School of Economics

Abstract: Over the last two decades, the Federal Open Market Committee (FOMC), the rate-setting body of the United States Federal Reserve System, has become increasingly communicative and transparent. According to policymakers, one of the goals of this shift has been to improve monetary policy predictability. Previous academic research has found that the FOMC has indeed become more predictable. Here, I contribute to the literature in two ways. First, instead of simply looking at predictability before and after the Fed’s communication reforms in the 1990s, I identify three distinct periods of reform and measure their separate contributions. Second, I correct the interest rate forecasts embedded in fed funds futures contracts for risk premiums, in order to obtain a less biased measure of predictability. My results suggest that the communication reforms of the early 1990s and the “guidance†provided from 2003 significantly improved predictability, while the release of the FOMC’s policy bias in 1999 had no measurable impact. Finally, I find that FOMC speeches and testimonies significantly lower short-term forecasting errors.

Keywords: central bank communication; central bank transparency; futures pricing; financial market efficiency (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
https://dspace.library.uu.nl/bitstream/handle/1874/273563/11-13.pdf (application/pdf)

Related works:
Working Paper: FOMC communication policy and the accuracy of Fed Funds futures (2011) 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:use:tkiwps:1113

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Utrecht School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Marina Muilwijk ().

 
Page updated 2024-06-15
Handle: RePEc:use:tkiwps:1113