monetary policy

New version of "Market-Based Monetary Policy"

We substantially revised our working paper “Market-Based Monetary Policy Uncertainty” and posted the new version online. The new version of the paper, which is coauthored with Aeimit Lakdawala and Philippe Mueller, not only includes several new results, but in addition features a simple model for the short-term interest rate with jumps around FOMC announcements, which is helpful for interpreting our empirical findings on the resolution of uncertainty and the FOMC uncertainty cycle.

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.