IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2007-185.html
   My bibliography  Save this paper

Where Have the Monetary Surprises Gone? The Effects of FOMC Statements

Author

Listed:
  • Mr. Andrew J Swiston

Abstract

This paper examines the impact of central bank communication on market expectations of monetary policy and long-term interest rates by comparing Federal Open Market Committee (FOMC) action dates when a policy statement was made to dates before statements were issued. Increased communication has been associated with a reduction in the magnitude of short-term monetary surprises; a greater flow of information about the long-term path of policy that is distinct from the short-term surprise; and a larger role for these long-term surprises in the determination of long-term interest rates.

Suggested Citation

  • Mr. Andrew J Swiston, 2007. "Where Have the Monetary Surprises Gone? The Effects of FOMC Statements," IMF Working Papers 2007/185, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2007/185
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=21193
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
    2. 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.
    3. Piazzesi, Monika & Swanson, Eric T., 2008. "Futures prices as risk-adjusted forecasts of monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 677-691, May.
    4. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction of Monetary Policy to the Stock Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(2), pages 639-669.
    5. 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.
    6. V. Vance Roley & Gordon H. Sellon, 1995. "Monetary policy actions and long-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, vol. 80(Q IV), pages 73-89.
    7. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    8. Lange, Joe & Sack, Brian & Whitesell, William, 2003. "Anticipations of Monetary Policy in Financial Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 889-909, December.
    9. Rudebusch, Glenn D., 2002. "Term structure evidence on interest rate smoothing and monetary policy inertia," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1161-1187, September.
    10. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    11. 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.
    12. Faust, Jon & Swanson, Eric T. & Wright, Jonathan H., 2004. "Identifying VARS based on high frequency futures data," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1107-1131, September.
    13. William Poole & Robert H. Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 65-94.
    14. 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.
    15. Fatum, Rasmus & Scholnick, Barry, 2006. "Do Exchange Rates Respond to Day-to-Day Changes in Monetary Policy Expectations When No Monetary Policy Changes Occur?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1641-1657, September.
    16. Refet S. Gürkaynak, 2005. "Using federal funds futures contracts for monetary policy analysis," Finance and Economics Discussion Series 2005-29, Board of Governors of the Federal Reserve System (U.S.).
    17. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January.
    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. Marfatia, Hardik A., 2015. "Monetary policy's time-varying impact on the US bond markets: Role of financial stress and risks," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 103-123.
    2. Lassaâd Mbarek & Hardik A. Marfatia & Sonja Juko, 2018. "Time-varying Response of Treasury Yields to Monetary Policy Shocks: Evidence from the Tunisian Bond Market," Working Papers 1243, Economic Research Forum, revised 23 Oct 2018.
    3. Hakan Berument & Richard T. Froyen, 2015. "Monetary policy and interest rates under inflation targeting in Australia and New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 49(2), pages 171-188, August.
    4. Berument, Hakan & Froyen, Richard, 2009. "Monetary policy and U.S. long-term interest rates: How close are the linkages?," Journal of Economics and Business, Elsevier, vol. 61(1), pages 34-50.
    5. Mira Farka & Adrian R. Fleissig, 2013. "The impact of FOMC statements on the volatility of asset prices," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1287-1301, April.
    6. Mira Farka & Adrian R. Fleissig, 2012. "The effect of FOMC statements on asset prices," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(3), pages 387-416, April.
    7. Mr. Tamim Bayoumi & Mr. Francis Vitek, 2013. "Macroeconomic Model Spillovers and Their Discontents," IMF Working Papers 2013/004, International Monetary Fund.
    8. N. K. Kishor & H. A. Marfatia, 2013. "Does federal funds futures rate contain information about the treasury bill rate?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(16), pages 1311-1324, August.
    9. Mr. Tamim Bayoumi & Mr. Trung T Bui, 2011. "Unforeseen Events Wait Lurking: Estimating Policy Spillovers From U.S. to Foreign Asset Prices," IMF Working Papers 2011/183, International Monetary Fund.

    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. repec:hal:spmain:info:hdl:2441/5221 is not listed on IDEAS
    2. repec:spo:wpmain:info:hdl:2441/5221 is not listed on IDEAS
    3. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 201-212, April.
    4. Dick van Dijk & Robin L. Lumsdaine & Michel van der Wel, 2014. "Market Set-Up in Advance of Federal Reserve Policy Decisions," NBER Working Papers 19814, National Bureau of Economic Research, Inc.
    5. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    6. Nicholas Taylor, 2010. "The Determinants of Future U.S. Monetary Policy: High‐Frequency Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2‐3), pages 399-420, March.
    7. Michael D. Bauer & Eric T. Swanson, 2023. "A Reassessment of Monetary Policy Surprises and High-Frequency Identification," NBER Macroeconomics Annual, University of Chicago Press, vol. 37(1), pages 87-155.
    8. Bernhard, Severin & Ebner, Till, 2017. "Cross-border spillover effects of unconventional monetary policies on Swiss asset prices," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 109-127.
    9. Piazzesi, Monika & Swanson, Eric T., 2008. "Futures prices as risk-adjusted forecasts of monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 677-691, May.
    10. Kenneth B. Petersen & Vladimir Pozdnyakov, 2008. "Predicting the Fed," Working papers 2008-07, University of Connecticut, Department of Economics.
    11. Daniel L. Thornton, 2014. "The identification of the response of interest rates to monetary policy actions using market-based measures of monetary policy shocks," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 67-87, January.
    12. Yuriy Gorodnichenko & Michael Weber, 2016. "Are Sticky Prices Costly? Evidence from the Stock Market," American Economic Review, American Economic Association, vol. 106(1), pages 165-199, January.
    13. Demiralp, Selva & Yılmaz, Kamil, 2012. "Asymmetric response to monetary policy surprises at the long-end of the yield curve," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 404-418.
    14. Farka, Mira & DaSilva, Amadeu, 2011. "The fed and the term structure: Addressing simultaneity within a structural VAR model," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 935-952.
    15. Rosa, Carlo, 2011. "Words that shake traders," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 915-934.
    16. Fischer, Andreas M. & Ranaldo, Angelo, 2011. "Does FOMC news increase global FX trading?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2965-2973, November.
    17. James D. Hamilton, 2009. "Daily Changes in Fed Funds Futures Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 567-582, June.
    18. Alexander Kurov, 2012. "What determines the stock market's reaction to monetary policy statements?," Review of Financial Economics, John Wiley & Sons, vol. 21(4), pages 175-187, November.
    19. Stylianos X. Koufadakis, 2015. "Asymmetries on Closed End Country Funds Premium and Monetary Policy Announcements: An Approach Trough the Perspective of Foreign Countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 65(3-4), pages 29-65, july-Dece.
    20. Schmeling, Maik & Schrimpf, Andreas & Steffensen, Sigurd A.M., 2022. "Monetary policy expectation errors," Journal of Financial Economics, Elsevier, vol. 146(3), pages 841-858.
    21. Chen, Zhengyang, 2019. "The Long-term Rate and Interest Rate Volatility in Monetary Policy Transmission," EconStor Preprints 204579, ZBW - Leibniz Information Centre for Economics.
    22. James D. Hamilton, 2007. "Assessing Monetary Policy Effects Using Daily Fed Funds Futures Contracts," NBER Working Papers 13569, National Bureau of Economic Research, Inc.

    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:imf:imfwpa:2007/185. 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: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    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.