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Biases in Monetary Policy Expectations Extracted From Fed Funds Futures and Surveys

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  • Hibiki Ichiue

    (Bank of Japan)

  • Tomonori Yuyama

    (Bank of Japan)

Abstract

The literature estimates the risk premia in the federal funds futures rates to extract market expectations of monetary policy by assuming that the forecast errors of the market expectations are zero on average, or that survey forecasts are good proxies for market expectations. These assumptions, however, may fail due to an unanticipated downtrend of the federal funds rate over the available sample or strategic behavior of survey respondents. Consequently, the two estimated premia under these assumptions may be biased upward and downward, respectively. We propose an alternative measure of premium, which has been negative on average since 2004.

Suggested Citation

  • Hibiki Ichiue & Tomonori Yuyama, 2007. "Biases in Monetary Policy Expectations Extracted From Fed Funds Futures and Surveys," Bank of Japan Working Paper Series 07-E-15, Bank of Japan.
    • Handle: RePEc:boj:bojwps:07-e-15
    as

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    References listed on IDEAS

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    1. J. Benson Durham, 2003. "Estimates of the term premium on near-dated federal funds futures contracts," Finance and Economics Discussion Series 2003-19, Board of Governors of the Federal Reserve System (U.S.).
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    5. James D. Hamilton, 2009. "Daily Changes in Fed Funds Futures Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 567-582, June.
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    8. Isabel Gameiro, 2006. "Estimating Forward Premia of Short-Term Interest Rates Based on Survey Results," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
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