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

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Staff Reports

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

March 2000Number 99

JEL classification: E4, G1

Author: Kenneth N. Kuttner

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.

Available only in PDF PDF

24 pages / 199 kb

For a published version of this report, see Kenneth N. Kuttner, "Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market," Journal of Monetary Economics 47, no. 3 (June2001): 523-44.

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