Journal Article

What are the odds? option-based forecasts of FOMC target changes

Abstract: This article uses probability forecasts derived from options to assess evolving market uncertainty about Federal Reserve monetary policy actions in a variety of recent events and episodes. Options on federal funds futures contracts reveal a complete probability density function over possible Federal Reserve target rates, thus augmenting the expectations provided by federal funds futures contracts. Option-based forecasts are most useful when more than two federal funds target outcomes are plausible at an upcoming policy meeting.

Keywords: Forecasting; Monetary policy; Federal Open Market Committee;

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2006

Volume: 88

Issue: Nov

Pages: 543-562