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The Policy Anticipation Hypothesis: Evidence from the Federal Funds Futures Market
Author(s) -
Burger John D.
Publication year - 2004
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1093/cep/byh041
Subject(s) - anticipation (artificial intelligence) , federal funds , economics , monetary policy , futures contract , monetary economics , proxy (statistics) , futures market , empirical evidence , interest rate , financial economics , macroeconomics , philosophy , epistemology , artificial intelligence , machine learning , computer science
In an era of increasingly transparent policy making by the Federal Reserve, market participants appear to interpret each economic announcement based on the implication for monetary policy. As a result, when macroeconomic news arrives economic agents revise their expectations of upcoming policy decisions and interest rates move accordingly. This article provides empirical support for this policy anticipation hypothesis utilizing the Federal funds futures market to proxy for policy expectations. The results indicate that once one controls for the role of policy anticipation the impact of many announcements on bond yields becomes statistically insignificant. (JEL E4 , E5 , G1 )