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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Using Federal Funds Futures Contracts for Monetary Policy Analysis
Refet S. Gurkaynak

Abstract: Federal funds futures are popular tools for calculating market-based monetary policy surprises. These surprises are usually thought of as the difference between expected and realized federal funds target rates at the current FOMC meeting. This paper demonstrates the use of federal funds futures contracts to measure how FOMC announcements lead to changes in expected interest rates after future FOMC meetings. Using several 'surprises' at different horizons, timing, level, and slope components of unanticipated policy actions are defined. These three components have differing effects on asset prices that are not captured by the contemporaneous surprise measure.

Keywords: Measuring monetary policy surprises, timing slope and level surprises, asset prices

Full paper (246 KB PDF)

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Last update: July 11, 2005