Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market
FRB of New York Staff Report No. 99
24 Pages Posted: 28 Mar 2000
Date Written: March 2000
This paper estimates the impact of monetary policy actions on bill, note, and bond yields, using data from the futures market for Federal funds to separate changes in the target funds rate into anticipated and unanticipated components. Bond rates' response to anticipated changes is essentially zero, while their response to unanticipated movements is large and highly significant. Surprise policy actions have little effect on near-term expectations of future actions, which helps explain the failure of the expectations hypothesis on the short end of the yield curve.
Keywords: monetary policy, term structure, Fed funds futures
JEL Classification: E4, G1
Suggested Citation: Suggested Citation