IDEAS home Printed from https://ideas.repec.org/a/eee/jmacro/v49y2016icp18-32.html
   My bibliography  Save this article

Have minutes helped to predict fed funds rate changes?

Author

Listed:
  • Jung, Alexander

Abstract

This paper examines whether the release of minutes of the Federal Open Market Committee (FOMC) has provided markets with systematic clues about its future policy rates. We explain the future fed funds rate changes using Ordered Probit models (sample 1996–2008). We find that timely FOMC meeting minutes have provided assurance to markets about the most likely path of future interest rates. Though, their release did not cause markets to fundamentally revise their expectations on future policy decisions. In line with Riboni and Ruge-Murcia (2014), the paper also finds that the internal skew derived from the Reserve Bank Presidents’ interest rate preferences of the FOMC contained systematic information about fed funds rate changes at forthcoming meetings.

Suggested Citation

  • Jung, Alexander, 2016. "Have minutes helped to predict fed funds rate changes?," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 18-32.
    • Handle: RePEc:eee:jmacro:v:49:y:2016:i:c:p:18-32
    DOI: 10.1016/j.jmacro.2016.04.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0164070416300167
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmacro.2016.04.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hayo, Bernd & Neuenkirch, Matthias, 2013. "Do Federal Reserve presidents communicate with a regional bias?," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 62-72.
    2. repec:fip:fedgfn:2015-05-26 is not listed on IDEAS
    3. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
    4. A. Jung, 2013. "Policymakers’ Interest Rate Preferences: Recent Evidence for Three Monetary Policy Committees," International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 150-197, September.
    5. Donald L. Kohn & Brian P. Sack, 2003. "Central bank talk: does it matter and why?," Finance and Economics Discussion Series 2003-55, Board of Governors of the Federal Reserve System (U.S.).
    6. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    7. El-Shagi, Makram & Jung, Alexander, 2015. "Have minutes helped markets to predict the MPC's monetary policy decisions?," European Journal of Political Economy, Elsevier, vol. 39(C), pages 222-234.
    8. El-Shagi, Makram & Jung, Alexander, 2015. "Does the Greenspan era provide evidence on leadership in the FOMC?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 173-190.
    9. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    10. Hansen, Stephen & McMahon, Michael, 2016. "Shocking language: Understanding the macroeconomic effects of central bank communication," Journal of International Economics, Elsevier, vol. 99(S1), pages 114-133.
    11. Meade, Ellen E & Sheets, D Nathan, 2005. "Regional Influences on FOMC Voting Patterns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 661-677, August.
    12. Riboni, Alessandro & Ruge-Murcia, Francisco, 2014. "Dissent in monetary policy decisions," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 137-154.
    13. Roger W Spencer & John H Huston & Erika G Hsie, 2013. "The Evolution of Federal Reserve Transparency Under Greenspan and Bernanke," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(4), pages 530-546, September.
    14. William Poole, 2005. "How predictable is Fed policy?," Review, Federal Reserve Bank of St. Louis, vol. 87(Nov), pages 659-668.
    15. Nicholas A. Burk & Melanie Josselyn & Ellen E. Meade, 2015. "The FOMC Meeting Minutes: An Assessment of Counting Words and the Diversity of Views," FEDS Notes 2015-05-26-2, Board of Governors of the Federal Reserve System (U.S.).
    16. Bjørn-Roger Wilhelmsen & Andrea Zaghini, 2011. "Monetary policy predictability in the euro area: an international comparison," Applied Economics, Taylor & Francis Journals, vol. 43(20), pages 2533-2544.
    17. Jung, Alexander & Latsos, Sophia, 2015. "Do federal reserve bank presidents have a regional bias?," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 173-183.
    18. Geoffrey M. B. Tootell, 2000. "Reserve Banks, the Discount Rate Recommendation, and FOMC Policy," Southern Economic Journal, John Wiley & Sons, vol. 66(4), pages 957-975, April.
    19. Michael Woodford, 2005. "Central bank communication and policy effectiveness," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 399-474.
    20. Michael Ehrmann & Marcel Fratzscher, 2007. "Transparency, Disclosure, and the Federal Reserve," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 179-225, March.
    21. Brian Madigan & William R. Nelson, 2002. "Proposed Revision to the Federal Reserve's Discount Window Lending Programs," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 88(7), pages .313-319, July.
    22. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
    23. Petra M. Geraats, 2006. "Transparency of Monetary Policy: Theory and Practice," CESifo Economic Studies, CESifo Group, vol. 52(1), pages 111-152, March.
    24. Deborah J. Danker & Matthew M. Luecke, 2005. "Background on FOMC meeting minutes," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 91(Spr), pages 175-179.
    25. Mark A. Wynne, 2013. "A short history of FOMC communication," Economic Letter, Federal Reserve Bank of Dallas, vol. 8(8), September.
    26. Daniel L. Thornton & David C. Wheelock, 2014. "Making sense of dissents: a history of FOMC dissents," Review, Federal Reserve Bank of St. Louis, vol. 96(3), pages 213-227.
    27. William Poole, 2005. "FOMC transparency," Review, Federal Reserve Bank of St. Louis, vol. 87(Jan), pages 1-9.
    28. Robert H. Rasche & Daniel L. Thornton, 2002. "The FOMC's balance-of-risks statement and market expectations of policy actions," Review, Federal Reserve Bank of St. Louis, vol. 84(Sep), pages 37-50.
    29. Swanson, Eric T., 2006. "Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 791-819, April.
    30. Gill Hammond, 2012. "State of the art of inflation targeting," Handbooks, Centre for Central Banking Studies, Bank of England, edition 4, number 29, April.
    31. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    32. Brett W. Fawley & Christopher J. Neely, 2014. "The evolution of Federal Reserve policy and the impact of monetary policy surprises on asset prices," Review, Federal Reserve Bank of St. Louis, vol. 96(1), pages 73-109.
    33. Otmar Issing, 2005. "Communication, transparency, accountability: monetary policy in the twenty-first century," Review, Federal Reserve Bank of St. Louis, vol. 87(Mar), pages 65-83.
    34. repec:pri:cepsud:161blinder is not listed on IDEAS
    35. Magnus Andersson, 2010. "Using Intraday Data to Gauge Financial Market Responses to Federal Reserve and ECB Monetary Policy Decisions," International Journal of Central Banking, International Journal of Central Banking, vol. 6(2), pages 117-146, June.
    36. Reeves, Rachel & Sawicki, Michael, 2007. "Do financial markets react to Bank of England communication?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 207-227, March.
    37. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2007. "The Role of the Bias in Crafting Consensus: FOMC Decision Making in the Greenspan Era," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 39-60, June.
    38. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2005. "Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033305, April.
    39. Petra Gerlach‐Kristen, 2004. "Is the MPC's Voting Record Informative about Future UK Monetary Policy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 299-313, June.
    40. Ellen E. Meade, 2005. "The FOMC: preferences, voting, and consensus," Review, Federal Reserve Bank of St. Louis, vol. 87(Mar), pages 93-101.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Baranowski, Pawel & Bennani, Hamza & Doryń, Wirginia, 2021. "Do the ECB's introductory statements help predict monetary policy? Evidence from a tone analysis," European Journal of Political Economy, Elsevier, vol. 66(C).
    2. Cour-Thimann, Philippine & Jung, Alexander, 2020. "Interest rate setting and communication at the ECB," Working Paper Series 2443, European Central Bank.
    3. Bennani, Hamza & Fanta, Nicolas & Gertler, Pavel & Horvath, Roman, 2020. "Does central bank communication signal future monetary policy in a (post)-crisis era? The case of the ECB," Journal of International Money and Finance, Elsevier, vol. 104(C).
    4. Rayane Hanifi & Klodiana Istrefi & Adrian Penalver, 2022. "Central Bank Communication of Uncertainty," Working papers 898, Banque de France.
    5. Hannah Baker & Shauna Concannon & Matthias Meller & Katie Cohen & Alice Millington & Samuel Ward & Emily So, 2022. "COVID-19 and science advice on the ‘Grand Stage’: the metadata and linguistic choices in a scientific advisory groups’ meeting minutes," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-16, December.
    6. Jung, Alexander, 2016. "Have monetary data releases helped markets to predict the interest rate decisions of the European Central Bank?," Working Paper Series 1926, European Central Bank.
    7. Paweł Baranowski & Hamza Bennani & Wirginia Doryń, 2020. "Do ECB introductory statements help to predict monetary policy: evidence from tone analysis," NBP Working Papers 323, Narodowy Bank Polski.
    8. Juan Camilo Anzoátegui Zapata & Juan Camilo Galvis, 2019. "Efectos de la comunicación del banco central sobre los títulos públicos: evidencia empírica para Colombia," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 38(77), pages 337-364, July.
    9. Mikael Apel & Marianna Blix Grimaldi & Isaiah Hull, 2022. "How Much Information Do Monetary Policy Committees Disclose? Evidence from the FOMC's Minutes and Transcripts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(5), pages 1459-1490, August.
    10. Cour-Thimann, Philippine & Jung, Alexander, 2021. "Interest-rate setting and communication at the ECB in its first twenty years," European Journal of Political Economy, Elsevier, vol. 70(C).
    11. Hüpper, Florian & Kempa, Bernd, 2023. "Inflation targeting and inflation communication of the Federal Reserve: Words and deeds," Journal of Macroeconomics, Elsevier, vol. 75(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jung, Alexander, 2016. "Have FOMC minutes helped markets to predict FED funds rate changes?," Working Paper Series 1961, European Central Bank.
    2. Jung, Alexander & El-Shagi, Makram, 2015. "Has the publication of minutes helped markets to predict the monetary policy decisions of the Bank of England's MPC?," Working Paper Series 1808, European Central Bank.
    3. El-Shagi, Makram & Jung, Alexander, 2015. "Have minutes helped markets to predict the MPC's monetary policy decisions?," European Journal of Political Economy, Elsevier, vol. 39(C), pages 222-234.
    4. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    5. Jung, Alexander, 2016. "Have monetary data releases helped markets to predict the interest rate decisions of the European Central Bank?," Working Paper Series 1926, European Central Bank.
    6. El-Shagi, Makram & Jung, Alexander, 2015. "Does the Greenspan era provide evidence on leadership in the FOMC?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 173-190.
    7. Lähner, Tom, 2015. "Inconsistent voting behavior in the FOMC," Hannover Economic Papers (HEP) dp-546, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    8. Petra Geraats, 2014. "Monetary Policy Transparency," CESifo Working Paper Series 4611, CESifo.
    9. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    10. Jan C. van Ours, 2022. "How Retirement Affects Mental Health, Cognitive Skills and Mortality; an Overview of Recent Empirical Evidence," Tinbergen Institute Discussion Papers 22-050/V, Tinbergen Institute.
    11. Riboni, Alessandro & Ruge-Murcia, Francisco, 2014. "Dissent in monetary policy decisions," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 137-154.
    12. Smales, L.A. & Apergis, N., 2017. "Does more complex language in FOMC decisions impact financial markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 171-189.
    13. Jung, Alexander & Latsos, Sophia, 2015. "Do federal reserve bank presidents have a regional bias?," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 173-183.
    14. Alexander Jung, 2018. "Have money and credit data releases helped markets to predict the interest rate decisions of the European Central Bank?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 65(1), pages 39-67, February.
    15. van der Cruijsen, C.A.B., 2008. "The economic impact of central bank transparency," Other publications TiSEM 86c1ba91-1952-45b4-adac-8, Tilburg University, School of Economics and Management.
    16. Jonne Lehtimäki & Marianne Palmu, 2022. "Who Should You Listen to in a Crisis? Differences in Communication of Central Bank Policymakers," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(3), pages 33-57.
    17. Hamza Bennani & Davide Romelli, 2024. "Exploring the informativeness and drivers of tone during committee meetings: the case of the Federal Reserve," Post-Print hal-04670309, HAL.
    18. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy and financial markets: evidence from Twitter traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    19. Hamza Bennani, 2016. "Measuring Monetary Policy Stress for Fed District Representatives," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(2), pages 156-176, May.
    20. Araujo, Luiz Nelson, 2016. "Dissemination of Information by the Federal Reserve System: An Overview and Benchmark," MPRA Paper 73185, University Library of Munich, Germany.

    More about this item

    Keywords

    Monetary policy; Communication; FOMC minutes; Predictability; Ordered Probit;
    All these keywords.

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:49:y:2016:i:c:p:18-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622617 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.