Monetary policy expectation errors

• 成果类型: Article
• 署名作者: Schmeling, Maik; Schrimpf, Andreas; Steffensen, Sigurd A. M.
• 署名单位: Goethe University Frankfurt; Bank for International Settlements (BIS); Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2022.09.005
• 发表日期: 2022
• 页码: 841-858
• 关键词: Expectation formation; monetary policy; Federal funds futures; Overnight index swaps; uncertainty

摘要

How are financial markets pricing the monetary policy outlook? We use surveys to decom-pose excess returns on money market instruments into expectation errors and term pre-mia. Excess returns are primarily driven by expectation errors, whereas term premia are negligible. Investors face challenges when learning about the Federal Reserve's response to large, but infrequent, negative shocks in real-time. Rather than reflecting risk compen-sation, excess returns stem from investors underestimating how much the central bank eases policy in response to such rare shocks. We show, for the US and internationally, that expectation errors imply excess return predictability from past stock returns.(c) 2022 Elsevier B.V. All rights reserved.