TY  - JOUR
AU  - Piazzesi,Monika
AU  - Swanson,Eric
TI  - Futures Prices as Risk-adjusted Forecasts of Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10547
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10547
L1  - http://www.nber.org/papers/w10547.pdf
N1  - Author contact info:
Monika Piazzesi
Department of Economics
Stanford University
579 Serra Mall
Stanford, CA 94305-6072
Tel: (650) 723-9289
E-Mail: piazzesi@stanford.edu

Eric T.. Swanson
Federal Reserve Bank of San Francisco
Economic Research, MS 1130
101 Market Street
San Francisco, CA  94105
Tel: 415/974-3172
E-Mail: eric.swanson@sf.frb.org
AB  - 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 to account for these premia. 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 has important consequences for the expected future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy surprises used in the literature.
ER  -