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What do Fed Funds Futures tell us about Monetary Policy Uncertainty

Jean-Sebastien Fontaine

Bank of Canada

October 15, 2016

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.

Number of Pages in PDF File: 59

Keywords: Interest Rates, Futures, Monetay Policy, Expectations

JEL Classification: E43, E44, G12, G13

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Date posted: February 17, 2009 ; Last revised: January 5, 2017

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

Contact Information

Jean-Sebastien Fontaine (Contact Author)
Bank of Canada ( email )
234 Wellington Street
Ontario, Ottawa K1A 0G9
HOME PAGE: http://www.jean-sebastienfontaine.com
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