The federal funds futures rate naturally embodies the market's expectation of the average behavior of the federal funds rate. But, as John C. Robertson and Daniel L. Thornton explain, analysts cannot attempt to identify Fed policy from the behavior of the federal funds futures rate without making somewhat arbitrary additional assumptions. The authors investigate the predictive accuracy of a rule based on the federal funds futures rate from October 1988 through August 1997 using an assumption that is sufficient for partially identifying when the market is expecting a Fed action but not for predicting the magnitude of the action. Their forecasting rule correctly predicts a target change at the one-month horizon only about one-third of the time. They conclude that more research is needed, especially in light of the FOMC's recent practice of disclosing policy decisions immediately after FOMC meetings.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by Federal Reserve Bank of St. Louis in its journal Review.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Kenneth B. Petersen & Vladimir Pozdnyakov, 2008.
"Predicting the Fed,"
Working papers
2008-07, University of Connecticut, Department of Economics.
[Downloadable!]
Did you know? All full texts are decentralized with the publishers, none reside on this server, thus making it possible to offer this service for free to all parties.