Anticipations of Monetary Policy in Financial Markets

By Joe Lange, Brian P. Sack, William C. Whitesell. 2001

170 citations recorded by the source corpus.

In recent years, financial markets appear better able to anticipate Federal Open Market Committee (FOMC) policy changes. Beginning in the late 1980s and early 1990s, longer-term interest rates and futures rates have tended to incorporate movements in the federal funds rate several months in advance, in contrast to the largely contemporaneous response typically observed before that time. After identifying these emerging trends, the paper parses the enhanced predictability into a component that can be attributed to the autoregressive behavior of the funds rate and a nonautoregressive component. The paper considers institutional developments in FOMC policy making that may have contributed to each of these components, including gradualism in adjusting the federal funds rate target and transparency regarding the setting of the target and future policy intentions.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/5eab1d3b85721101b2f4382d1fdabea7d1665dfc

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Citations in the corpus

Central Bank Communication and Policy Effectiveness (2005, unknown): “Statistical evidence of increased forecastability of Fed policy by the markets is provided by Lange et al. (2001), who show that the ability of Treasury bill yields to predict changes in the federal funds rate some months in advance has increased since the late 1980s. heavily on the assumption that…”
Term structure evidence on interest rate smoothing and monetary policy inertia (2002, unknown): “Also, see Lange, Sack, and Whitesell (2001).”
Communication and Decision-Making by Central Bank Committees: Different Strategies, Same Effectiveness? (2005, unknown): “(2004) and Meyer (1998), when it comes to the policy decision and voting Chairman Greenspan generally speaks first, presents his policy proposal and then asks the FOMC members for their vote.”
Inflation targeting and optimal monetary policy (2004, background): “Statistical evidence of increased forecastability of Fed policy by the markets is provided by Lange et al. (2001), who show that the ability of Treasury bill yields to predict changes in the federal funds rate some months in advance has increased since the late 1980s. means other than the…”
Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts? (2006, background): “I thank Jim Clouse, Vincent Reinhart, Bill Whitesell, John Driscoll, Athanasios Orphanides, and an anonymous referee for helpful discussions, comments, and suggestions, and Ryan Michaels and Claire Hausman for excellent research assistance.”