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Discussion Paper
Survey Measures of Expectations for the Policy Rate
Raskin, Matthew; Moench, Emanuel; Rosa, Carlo; Stowe, Lisa; Boyle, Jeremiah P.; Crump, Richard K.
(2014-12-05)
Market prices provide timely information on policy expectations. But as we emphasized in our previous post, they can deviate from investors? expectations of the most likely path because they embed risk premiums and represent probability-weighted averages over different possible paths. In contrast, surveys explicitly ask respondents for their views on the likely path of economic variables. In this post, we highlight two surveys conducted by the Federal Reserve Bank of New York that provide information about expectations that can complement market-based measures.
Liberty Street Economics
, Paper 20141205a
Discussion Paper
Treasury Term Premia: 1961-Present
Moench, Emanuel; Mills, Benjamin; Adrian, Tobias; Crump, Richard K.
(2014-05-12)
Treasury yields can be decomposed into two components: expectations of the future path of short-term Treasury yields and the Treasury term premium. The term premium is the compensation that investors require for bearing the risk that short-term Treasury yields do not evolve as they expected. Studying the term premium over a long time period allows us to investigate what has historically driven changes in Treasury yields. In this blog post, we estimate and analyze the Treasury term premium from 1961 to the present, and make these estimates available for download here.
Liberty Street Economics
, Paper 20140512
Discussion Paper
The Effects of Post-Crisis Banking Reforms
Crump, Richard K.; Santos, Joao A. C.
(2018-10-01)
The financial crisis of 2007-08 exposed many limitations of the regulatory architecture of the U.S. financial system. In an attempt to mitigate these limitations, there has been a wave of regulatory reforms in the post-crisis period, especially in the banking sector. These include tighter bank capital and liquidity rules; new resolution procedures for failed banks; the creation of a stand-alone consumer protection agency; greater transparency in money market funds; and a move to central clearing of derivatives, among other measures. As these reforms have been finalized and implemented, a ...
Liberty Street Economics
, Paper 20181001b
Discussion Paper
Preparing for Takeoff? Professional Forecasters and the June 2013 FOMC Meeting
Moench, Emanuel; Eusepi, Stefano; Crump, Richard K.
(2013-09-09)
Following the June 18-19 Federal Open Market Committee (FOMC) meeting different measures of short-term interest rates increased notably. In the chart below, we plot two such measures: the two-year Treasury yield and the one-year overnight indexed swap (OIS) forward rate, one year in the future. The vertical line indicates the final day of the June FOMC meeting. To what extent did this rise in rates following the June FOMC meeting reflect a shift in the expected future path of the federal funds rate (FFR)? Market participants and policy makers often directly read the expected path from ...
Liberty Street Economics
, Paper 20130909
Report
Regression-based estimation of dynamic asset pricing models
Moench, Emanuel; Adrian, Tobias; Crump, Richard K.
(2011)
We propose regression-based estimators for beta representations of dynamic asset pricing models with an affine pricing kernel specification. We allow for state variables that are cross-sectional pricing factors, forecasting variables for the price of risk, and factors that are both. The estimators explicitly allow for time-varying prices of risk, time-varying betas, and serially dependent pricing factors. Our approach nests the Fama-MacBeth two-pass estimator as a special case. We provide asymptotic multistage standard errors necessary to conduct inference for asset pricing test. We ...
Staff Reports
, Paper 493
Discussion Paper
Fundamental Disagreement: How Much and Why?
Eusepi, Stefano; Crump, Richard K.
(2016-01-13)
Everyone disagrees, even professional forecasters, especially about big economic questions. Has potential output growth changed since the financial crisis? Are we bound for a period of “secular stagnation”? Will the European economy rebound? When is inflation getting back to mandate-consistent level? In this post, we document to what degree professional forecasters disagree and discuss potential reasons why. In a recent working paper, we document a set of novel facts about disagreement among professional forecasters over the last thirty years. We focus on the “trinity” of U.S. output ...
Liberty Street Economics
, Paper 20160113
Discussion Paper
What Drives Forecaster Disagreement about Monetary Policy?
Crump, Richard K.; Eusepi, Stefano
(2016-08-15)
What can disagreement teach us about how private forecasters perceive the conduct of monetary policy? In a previous post, we showed that private forecasters disagree about both the short-term and the long-term evolution of key macroeconomic variables but that the shape of this disagreement differs across variables. In contrast to their views on other macroeconomic variables, private forecasters disagree substantially about the level of the federal funds rate that will prevail in the medium to long term but very little on the rate at shorter horizons. In this post, we explore the possible ...
Liberty Street Economics
, Paper 20160815
Report
Fundamental Disagreement about Monetary Policy and the Term Structure of Interest Rates
Moench, Emanuel; Eusepi, Stefano; Cao, Shuo; Crump, Richard K.
(2020-07-01)
Using a unique data set of individual professional forecasts, we document disagreement about the future path of monetary policy, particularly at longer horizons. The stark differences in short rate forecasts imply strong disagreement about the risk-return trade-off of longer-term bonds. Longer-horizon short rate disagreement co-moves with term premiums. We estimate an affine term structure model in which investors hold heterogeneous beliefs about the long-run level of rates. Our model fits Treasury yields and the short rate paths predicted by different groups of investors and thus matches the ...
Staff Reports
, Paper 934
Report
The Term Structure of Expectations
Moench, Emanuel; Eusepi, Stefano; Preston, Bruce; Crump, Richard K.
(2021-11-01)
Economic theory predicts that intertemporal decisions depend critically on expectations about future outcomes. Using the universe of professional survey forecasts for the United States, we document the behavior of the entire term structure of expectations for output growth, inflation, and the policy rate. We show that a simple unobserved components model of the trend and cycle explains the joint behavior of both consensus measures of expectations and the observed disagreement among individual forecasters. Importantly, univariate models of each variable are outperformed by a multivariate model ...
Staff Reports
, Paper 992
Discussion Paper
Short-Dated Term Premia and the Level of Inflation
Crump, Richard K.; Smith, Charles; Van Tassel, Peter
(2022-09-28)
Since the advent of derivatives trading on short-term interest rates in the 1980s, financial commentators have often interpreted market prices as directly reflecting the expected path of future interest rates. However, market prices generally embed risk premia (or “term premia” in reference to measures of risk premia over different horizons) reflecting the compensation required to bear the risk of the asset. When term premia are large in magnitude, derivatives prices may differ substantially from investor expectations of future rates. In this post, we assess whether term premia have ...
Liberty Street Economics
, Paper 20220928
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Eusepi, Stefano 17 items
Moench, Emanuel 16 items
Boyarchenko, Nina 14 items
Kovner, Anna 11 items
Shachar, Or 8 items
Adrian, Tobias 7 items
Giannone, Domenico 5 items
Lucca, David O. 5 items
Cattaneo, Matias D. 4 items
Sahin, Aysegul 4 items
Dogra, Keshav 3 items
Elias, Leonardo 3 items
Gospodinov, Nikolay 3 items
Lopez Gaffney, Ignacio 3 items
Boyle, Jeremiah P. 2 items
Cox, Caren 2 items
Danzig, Andrew 2 items
Del Negro, Marco 2 items
Diamond, Peter A. 2 items
Farrell, Max H. 2 items
Giannoni, Marc 2 items
Gundam, Pranay 2 items
Hundtofte , Sean 2 items
Lee, Donggyu 2 items
Leonard, Deborah 2 items
Nallamotu, Ramya 2 items
Pacula, Brian 2 items
Raskin, Matthew 2 items
Rosa, Carlo 2 items
Santos, Joao A. C. 2 items
Steiner, Patrick 2 items
Stowe, Lisa 2 items
Van Tassel, Peter 2 items
Yu, Rui 2 items
Abrahams, Michael 1 items
Almuzara, Martín 1 items
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Cao, Shuo 1 items
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Mills, Benjamin 1 items
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monetary policy 9 items
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expectations 4 items
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term structure of interest rates 4 items
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