Overnight index swap rates as forecasts of monetary policy

In the third chapter (jointly with Igor Pozdeev), we document overnight index swaps (OIS) to be unbiased predictors of future short rates in developed economies, bearing no significant risk premium for maturities up to one year. We show that the OIS underlying overnight rates accurately reflect the target rates set by central banks. We extract the implied future target rates from the OIS prices to predict the outcome of monetary policy meetings around the world. In the US, a randomly selected triplet of a target rate hike, cut and no-change is correctly classified using the OIS-implied rates in 99.9 and 98% of cases five and ten days before a FOMC announcement respectively. We report similarly high prediction accuracy for other developed countries.