The Information Content of the Federal Funds Rate: Is it Unique?

This paper investigates the information content of the federal funds rate relative to other market interest rates. The empirical results indicate that the federal funds rate is not informationally superior to the overnight repurchase rate or the three-month T-bill rate. Unanticipated changes in monetary policy do not systematically move the funds rate away from its long-run equilibrium relationship with other short-term interest rates. These results support the efficient-market view that the federal funds rate should not contain more information, including that about monetary policy, than other interest rates. Copyright 1995 by Ohio State University Press.