New working paper: Market-Based Monetary Policy Uncertainty
Together with my coauthors Aeimit Lakdawala and Philippe Mueller I have written a new paper on “Market-Based Monetary Policy Uncertainty” which you can download here. We propose a new, market-based measure of the uncertainty about future monetary policy decisions, using prices of Eurodollar options. Using this novel measure in hand we document new stylized facts about the role of uncertainty for the transmission of monetary policy to financial markets. Particularly intruiging, in my view, is a substantial drop in uncertainty around FOMC announcements, a finding that could be used to create a profitable trading strategy.