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Fed funds futures and the news

  • Adrienne Kearney
  • Raymond Lombra
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    The objective of this paper is to determine whether the observed variation in the response of market interest rates over the 1990s to the news about employment is a result, at least in part, of changes in expectations for monetary policy. Fed funds futures rates, which embody predictions for the expected monthly average of the daily effective funds rate, are used to capture market participants' expectations for monetary policy in the face of employment surprises. It is found that unanticipated employment announcements have a positive and statistically significant impact on one- and three-month-ahead fed funds futures rates and the size of the impact declines over the 1990s, thereby coinciding with a noticeable decline in the frequency of adjustment in the fed funds target rate. Copyright International Atlantic Economic Society 2003

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    File URL: http://hdl.handle.net/10.1007/BF02298491
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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 31 (2003)
    Issue (Month): 4 (December)
    Pages: 330-337

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    Handle: RePEc:kap:atlecj:v:31:y:2003:i:4:p:330-337
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    1. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    2. Timothy Cook & Steven Korn, 1991. "The reaction of interest rates to the employment report: the role of policy anticipations," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 3-12.
    3. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer, vol. 18(2), pages 255-298, December.
    4. Raymond E. Owens & Roy H. Webb, 2001. "Using the federal funds futures market to predict monetary policy actions," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 69-77.
    5. Michael Dueker, 1999. "Measuring monetary policy inertia in target Fed funds rate changes," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-10.
    6. Joe Lange & Brian Sack & William Whitesell, 2001. "Anticipations of monetary policy in financial markets," Finance and Economics Discussion Series 2001-24, Board of Governors of the Federal Reserve System (U.S.).
    7. William T. Gavin & Rachel J. Mandal, 2000. "Mixed signals?," National Economic Trends, Federal Reserve Bank of St. Louis, issue Jul.
    8. David C. Wheelock, 2000. "Are the Fed and financial markets in sync?," Monetary Trends, Federal Reserve Bank of St. Louis, issue Oct.
    9. Jeff Moore & Richard Austin, 2002. "The behavior of federal funds futures prices over the monetary policy cycle," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 45-61.
    10. Charles L. Evans, 1998. "Real-time Taylor rules and the federal funds futures market," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 44-55.
    11. Joel T. Krueger & Kenneth N. Kuttner, 1995. "The Fed funds futures rate as a predictor of Federal Reserve policy," Working Paper Series, Macroeconomic Issues 95-4, Federal Reserve Bank of Chicago.
    12. John C. Robertson & Daniel L. Thornton, 1997. "Using federal funds futures rates to predict Federal Reserve actions," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 45-53.
    13. William Poole & Robert H & Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 65-94.
    14. Ed Nosal, 2001. "How well does the federal funds futures rate predict the future federal funds rate?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
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