An analysis of how federal funds futures markets are efficient processors of information concerning the future path of the fed funds rate and a discussion of some related implications for central-bank policymaking.

The federal funds futures market enables market participants to both hedge interest rate risk and speculate on interest rate movements. Prices of federal funds futures also reveal market participants' expectations about changes in Federal Open Market Committee (FOMC) policy. This information...

Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission

Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission

Over the past several years, Taylor rules have attracted increased attention of analysts, policymakers, and the financial press. Taylor rules recommend a setting for the level of the federal funds rate based on the state of the economy. Taylor rules have become more appealing recently with the...

In October 1982 the FOMC deemphasized M1 and moved to what is commonly referred to as a borrowed reserves operating procedure. Sometime thereafter the FOMC switched to a funds rate targeting procedure but never formally announced the change. Given the close correspondence between a borrowed...

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they have met, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive...

Monetary policy is concerned with the ultimate goals of price stability, full employment, and economic growth, and with the short-run stability of financial markets.

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...

Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission