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This paper measures the probability of rare disasters by measuring the probability of the intermeeting federal funds rate cuts they provoke. Dif- ferentiating between months with Federal Open Market Committee (FOMC) meetings and months without identifies excess returns on federal funds futures averaging -1.5 bps per horizon month-ahead at short horizons, corresponding to a 3-5% per month risk-neutral probability of an intermeeting rate cut. The excess returns differ between months with and without meetings, suggesting a positive risk premium associated with meetings. The federal funds excess returns explain a significant portion of equity excess returns, and hence the equity premium puzzle. [ABSTRACT FROM AUTHOR]

This paper studies the effects of Federal Open Market Committee (FOMC) forward guidance language. I estimate two policy surprises at FOMC meetings: a change in the current federal funds rate and an orthogonal change in the expected path of the federal funds rate. From February 2000 to June 2003, the FOMC only gave forward guidance about risks to the economic outlook, and a surprise increase in the expected federal funds rate path had expansionary effects. This is consistent with models of central bank information effects, where a positive economic outlook causes private agents to revise up their expectations for the economy. From August 2003 to May 2006, the FOMC also gave forward guidance about policy inclinations, and a surprise increase in the federal funds rate path had contractionary effects. These results are consistent with standard macroeconomic models of forward guidance. Overall, the effects of forward guidance depend on the FOMC's choice to use one or both of the economicoutlook and policy-inclination aspects of forward guidance. [ABSTRACT FROM AUTHOR]

We examine the macroeconomic effects of forward guidance shocks at the zero lower bound. Empirically, we identify forward guidance shocks using a two-step procedure, which embeds high-frequency futures contracts in a structural vector autoregression. An exogenous extension of the zero lower bound duration increases economic activity and prices. We show that a standard model of nominal price rigidity largely replicates these empirical results. To estimate our theoretical model, we generate a model-implied futures curve which allows us to closely link our model with the data. Our results suggest no disconnect between the empirical effects of forward guidance shocks and the predictions from a simple theoretical model. [ABSTRACT FROM AUTHOR]