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  • A Simple Macro-Finance Measure of Risk Premia in Fed Funds Futures

    From federalreserve.gov

    Term premia can contaminate the policy expectations that we derive from Fed Funds Futures while assuming risk neutrality. Existing estimates of term premia used in the literature are computed from term structure models that depend on mean reversion (based on historical data) and survey expectations.1 Term structure models that depend on mean reversion can imply terminal or long-run rates that may not correspond to the current economic environment. For instance, the OIS-ZLB model of Priebsch (2017)2 estimates (based on historical data going back 25 years) a terminal rate close to 4 percent and a steeper path of policy when ... (full story)