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Monetary policy surprises and interest rates: evidence from the Fed funds futures markets

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  • Kenneth N. Kuttner

Abstract

This paper estimates the impact of monetary policy actions on bill, note, and bond yields, using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components. Bond rates' response to anticipated changes is essentially zero, while their response to unanticipated movements is large and highly significant. Surprise policy actions have little effect on near-term expectations of future actions, which helps explain the failure of the expectations hypothesis on the short end of the yield curve.

Suggested Citation

  • Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:99
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    References listed on IDEAS

    as
    1. Charles L. Evans & Kenneth N. Kuttner, 1998. "Can VAR's describe monetary policy?," Working Paper Series WP-98-19, Federal Reserve Bank of Chicago.
    2. Joel T. Krueger & Kenneth N. Kuttner, 1996. "The Fed funds futures rate as a predictor of federal reserve policy," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(8), pages 865-879, December.
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    5. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-931, November.
    6. Yash P. Mehra, 1996. "Monetary policy and long-term interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-49.
    7. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
    8. Michael J. Fleming & Eli M Remolona, 1999. "The term structure of announcement effects," BIS Working Papers 71, Bank for International Settlements.
    9. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense? A Reply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 943-948, November.
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    Keywords

    Federal funds market (United States); Monetary policy; Interest rates;
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