Overnight Index Swap Market-Based Measures of Monetary Policy Expectations

35 Pages Posted: 2 Mar 2018

Multiple version iconThere are 2 versions of this paper

Date Written: February 9, 2018

Abstract

I assess the use of overnight indexed swap (OIS) rates as measures of monetary policy expectations. I find that one to twelve-month US OIS rates provide measures of investors’ interest rate expectations that are comparable to those from corresponding-horizon federal funds futures rates, which have regularly been used as financial market-based measures of US interest rate expectations. More generally, I find that one to 24-month US, euro-zone and Japanese OIS rates and one to 18-month UK OIS rates tend to accurately measure expectations of future short-term interest rates. Motivated by these results, researchers can look to OIS rates as globally comparable measures of monetary policy expectations.

Keywords: Federal funds futures, overnight indexed swaps, monetary policy expectations

JEL Classification: E43, E44, E52

Suggested Citation

Lloyd, Simon, Overnight Index Swap Market-Based Measures of Monetary Policy Expectations (February 9, 2018). Bank of England Working Paper No. 709. Available at SSRN: https://ssrn.com/abstract=3132307 or http://dx.doi.org/10.2139/ssrn.3132307

Simon Lloyd (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://sites.google.com/view/splloyd

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