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  3. 2027
  4. Preliminary Program
  5. Prediction Markets, Derivatives, and Monetary Policy
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Prediction Markets, Derivatives, and Monetary Policy

Paper Session

Tuesday, Jan. 5, 2027 1:00 PM - 3:00 PM (EST)

Marriott Marquis Washington DC
Hosted By: American Economic Association
  • Chair: Annette Vissing-Jorgensen, Federal Reserve Board

Kalshi and the Rise of Macro Markets

Anthony Diercks
,
Federal Reserve Board
Jared Dean Katz
,
Northwestern University
Jonathan Wright
,
Johns Hopkins University and NBER

Abstract

Prediction markets offer a new market-based approach to measuring macroeconomic expectations in real-time. We evaluate the accuracy of prediction market-implied forecasts from Kalshi, the largest federally regulated prediction market overseen by the
CFTC. We compare Kalshi with more traditional survey and market-implied forecasts, examine how expectations respond to macroeconomic and financial news, and how policy signals are interpreted by market participants. Our results suggest that
Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.

Under Pressure? Central Bank Independence Meets Blockchain Prediction Markets

Barry Eichengreen
,
University of California-Berkeley, NBER and CEPR
Ganesh Viswanath-Natraj
,
Warwick Business School
Junxuan Wang
,
Hong Kong University of Science and Technology-Guangzhou
Zijie Wang
,
Warwick Business School

Abstract

Employing data from Polymarket, a blockchain-based prediction market where users trade on Federal Reserve rate decisions and scenarios related to central bank independence, we construct a hawk–dove score for wallets and link beliefs to monetary policy expectations. Users who believe President Trump will fire Fed Chair Powell, and who expect stronger political pressure on the central bank, hold more dovish views and expect lower short-term rates than other users. They also expect higher long-term Treasury yields and higher inflation, consistent with reduced policy credibility. The findings indicate that political events affect expectations through perceived threats to central bank independence.

The Effects of Monetary Policy on Macroeconomic Expectations: High-Frequency Evidence from Prediction Markets

Eric Swanson
,
University of California-Irvine and NBER
Renxuan Wang
,
CEIBS
Yanbin Wu
,
University of Florida

Abstract

When the Federal Reserve raises interest rates, standard macroeconomic models and
VARs predict that output, employment, and inflation should fall over the next several
quarters. However, monthly-frequency professional macroeconomic forecast data often
respond positively to these events, leading to a debate about what could explain these
puzzling responses. We bring to bear new high-frequency data on this question from
macroeconomic event contracts traded on Kalshi, a CFTC-licensed, U.S.-based event
trading exchange and prediction market. These high-frequency event contracts allow
us to isolate and estimate the effects of monetary policy and other announcements on
the Kalshi market-implied macroeconomic expectations. Our results are consistent with
standard transmission channels from monetary policy to the macroeconomy, with little
or no role for a “Fed Information Effect”.

Dividend Expectations and Monetary Transmission

Michael Bauer
,
Federal Reserve Bank of San Francisco and CEPR
Eric Offner
,
Frankfurt School of Finance and Management

Abstract

Standard theories of monetary transmission predict that dividend expectations should decline following monetary policy tightening. However, direct evidence from market-based measures is mixed: After a tightening surprise, prices of near-term dividend strips inferred from options data increase, whereas prices of longer-term strips derived from dividend swaps and futures decline. This paper reconciles these conflicting findings with standard monetary theory. First, we show that estimates of the sensitivity of options-implied dividend strip returns are subject to measurement error and to minor specification choices. Second, we propose a parsimonious term structure model that combines information from various data sources to produce more precise estimates of market-based risk-adjusted dividend expectations. We find that short-term risk-adjusted dividend expectations fall in response to monetary policy tightening, although by less than long-term expectations. Evidence from survey-based dividend expectations indicates that these responses are not due to risk premia. Taken together, our findings confirm the negative effects of monetary policy on future dividends that is predicted by New Keynesian models.

Discussant(s)
Aeimit Lakdawala
,
Wake Forest University
Klodiana Istrefi
,
European Central Bank
Anna Cieslak
,
Duke University
Dongho Song
,
Johns Hopkins University
JEL Classifications
  • E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
  • G1 - General Financial Markets