Working Paper
The Predictability of Global Monetary Policy Surprises
Abstract: Markets systematically misprice interest rate changes around central bank announcements. I show that the strongest predictor of this mispricing is recent change in global interest rates. More specifically, a 1 percentage point increase in global short-term interest rates in the 15 days before a central bank meeting is associated with a 12-basis point surprise increase in short-term rates at that meeting. I demonstrate that this is the result of markets underreacting to signals coming from the global interest rate cycle.
JEL Classification: E43; E52; E58;
https://doi.org/10.29412/res.wp.2025.14
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Bibliographic Information
Provider: Federal Reserve Bank of Boston
Part of Series: Working Papers
Publication Date: 2025-11-01
Number: 25-14