Keywords: Measuring monetary policy surprises, timing slope and level surprises, asset prices
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.
Full paper (246 KB PDF)
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Last update: July 11, 2005