Bank of England staff Simon Lloyd assesses the use of overnight indexed swap (OIS) rates as measures of monetary policy expectations. He finds that 1- to 12-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, Lloyd finds that 1- to 24-month US, euro-zone, and Japanese OIS rates and 1- 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.
