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What do Fed Funds Futures tell us about Monetary Policy Uncertainty

59 Pages Posted: 17 Feb 2009 Last revised: 5 Jan 2017

Jean-Sebastien Fontaine

Bank of Canada

Date Written: October 15, 2016

Abstract

The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a ``path'' factor signaling information about future policy actions, which is filtered from federal funds futures data. The uncertainty is lowest when the path factor signals a loosening cycle and highest when it signals a loosening cycle. The uncertainty raises the risk premium in a loosening cycle, reducing the transmission of target changes to longer maturities. Our results trace the information content of federal funds futures to hedging demand.

Keywords: Interest Rates, Futures, Monetay Policy, Expectations

JEL Classification: E43, E44, G12, G13

Suggested Citation

Fontaine, Jean-Sebastien, What do Fed Funds Futures tell us about Monetary Policy Uncertainty (October 15, 2016). Available at SSRN: https://ssrn.com/abstract=1343913 or http://dx.doi.org/10.2139/ssrn.1343913

Jean-Sebastien Fontaine (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

HOME PAGE: http://www.jean-sebastienfontaine.com

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