Futures prices as risk-adjusted forecasts of monetary policy☆ Export

@article{citeulike:3773394, abstract = {Many researchers have used federal funds futures rates as measures of financial markets\&\#x2019; expectations of future monetary policy. However, to the extent that federal funds futures reflect risk premia, these measures require some adjustment. In this paper, we document that excess returns on federal funds futures have been positive on average and strongly countercyclical. In particular, excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business-cycle indicators such as Treasury yield spreads and corporate bond spreads. Excess returns on eurodollar futures display similar patterns. We document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy shocks used in the literature.}, author = {Piazzesi, M. and Swanson, E.}, citeulike-article-id = {3773394}, citeulike-linkout-0 = {http://dx.doi.org/10.1016/j.jmoneco.2008.04.003}, citeulike-linkout-1 = {http://linkinghub.elsevier.com/retrieve/pii/S0304393208000494}, doi = {10.1016/j.jmoneco.2008.04.003}, issn = {03043932}, journal = {Journal of Monetary Economics}, keywords = {derivative, forecast, money}, month = {May}, number = {4}, pages = {677--691}, posted-at = {2008-12-11 09:57:07}, priority = {2}, title = {Futures prices as risk-adjusted forecasts of monetary policy☆}, url = {http://dx.doi.org/10.1016/j.jmoneco.2008.04.003}, volume = {55}, year = {2008} }

TY - JOUR ID - citeulike:3773394 L3 - citeulike-article-id:3773394 N2 - Many researchers have used federal funds futures rates as measures of financial markets’ expectations of future monetary policy. However, to the extent that federal funds futures reflect risk premia, these measures require some adjustment. In this paper, we document that excess returns on federal funds futures have been positive on average and strongly countercyclical. In particular, excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business-cycle indicators such as Treasury yield spreads and corporate bond spreads. Excess returns on eurodollar futures display similar patterns. We document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy shocks used in the literature. IS - 4 JF - Journal of Monetary Economics SN - 03043932 EP - 691 TI - Futures prices as risk-adjusted forecasts of monetary policy☆ VL - 55 SP - 677 KW - derivative KW - forecast KW - money AU - Piazzesi, M AU - Swanson, E PY - 2008/05// UR - http://dx.doi.org/10.1016/j.jmoneco.2008.04.003 ER -