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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

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    1. Michael J. Fleming & Eli M Remolona, 1999. "The term structure of announcement effects," BIS Working Papers 71, Bank for International Settlements.
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    Keywords

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