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Monetary Policy Surprises and Monetary Policy Uncertainty Accessible Data
Figure 1: Width of 90% Federal Funds Rate Confidence Interval (12 Months Ahead)
Figure 1 shows our measure of this uncertainty that is the width of the confidence interval for the federal funds rate computed from the term structures for the expected federal funds rate--derived from federal funds futures--and implied volatility--derived from Eurodollar futures options. The latter is adjusted for the level difference in volatility between federal funds futures options and Eurodollar options. The measure shown is the distance in basis points between the 5th and the 95th percentiles of the implied federal funds rate distribution at the one-year horizon. Our measure of monetary policy uncertainty fluctuated pronouncedly in the early 1990s and 2000s, reached its nadir following the financial crisis--when the federal funds rate was at the zero lower bound and forward guidance was in effect--and moved up some in recent years as the FOMC has begun to lift interest rates away from the zero lower bound. Despite some increases in recent years, the prevailing level of uncertainty is still quite low by historical standards at about 80 in December 2017.