Overnight index swap market-based measures of monetary policy expectations

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 09 February 2018

Working Paper No. 709
By Simon Lloyd

I assess the use of overnight indexed swap (OIS) rates as measures of monetary policy expectations. I find that one to twelve-month US OIS rates provide measures of investors’ interest rate expectations that are comparable to those from corresponding-horizon federal funds futures rates, which have regularly been used as financial market-based measures of US interest rate expectations. More generally, I find that one to 24-month US, euro-zone and Japanese OIS rates and one to 18-month UK OIS rates tend to accurately measure expectations of future short-term interest rates. Motivated by these results, researchers can look to OIS rates as globally comparable measures of monetary policy expectations.

PDFWorking Paper No. 709

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