Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Markets

24 Pages Posted: 1 Oct 2006

See all articles by Kenneth N. Kuttner

Kenneth N. Kuttner

National Bureau of Economic Research (NBER); Williams College

Date Written: March 2000

Abstract

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

Kuttner, Kenneth N. and Kuttner, Kenneth N., Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Markets (March 2000). FRB of New York Staff Report No. 99, Available at SSRN: https://ssrn.com/abstract=933694 or http://dx.doi.org/10.2139/ssrn.933694

Kenneth N. Kuttner (Contact Author)

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