Constructing high-frequency monetary policy surprises from SOFR futures

Abstract

Eurodollar futures were the bedrock for constructing high-frequency series of monetary policy surprises, so their discontinuation poses a challenge for the continued empirical study of monetary policy. We propose an approach for updating the series of Gurkaynak et al. (2005) and Nakamura and Steinsson (2018) with SOFR futures in place of Eurodollar futures that is conceptually and materially consistent. We recommend using SOFR futures from January 2022 onward based on regulatory developments and trading volumes. The updatedseries suggest that surprises over the recent tightening cycle are larger in magnitude than those seen over the decade prior and restrictive on average.