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Federal Reserve Research: Kalshi Could Be a Superior Macroeconomic Expectations Measurement Tool
BlockBeats News, February 19th: Three Federal Reserve researchers believe that the prediction market Kalshi outperforms existing tools in real-time measurement of macroeconomic expectations and should therefore be incorporated into the Fed's decision-making process.
The research paper titled "Kalshi and the Rise of Macro Markets" was released on February 12th, authored by Federal Reserve Board Chief Economist Anthony Diercks, Federal Reserve Research Assistant Jared Dean Katz, and Johns Hopkins University Research Assistant Jonathan Wright.
The study compared Kalshi's data with traditional surveys and market-implied forecasts to examine how market expectations of future economic outcomes evolve based on macroeconomic news and policymakers' statements.
"Managing expectations is at the core of modern macroeconomic policy. However, the tools we typically rely on—surveys and financial derivatives—have many shortcomings," the researchers said, adding that Kalshi can capture the market's "beliefs" in a "direct and real-time" manner. "The Kalshi market provides a high-frequency, continuously updating, information-rich benchmark, which is valuable to researchers and policymakers alike."
However, the Fed's research paper is just "preliminary material distributed to stimulate discussion" and will not impact the central bank's decisions.
The Fed pointed out that one advantage of Kalshi in examining macroeconomic expectations is its "rich intraday dynamics." The researchers stated: "These probabilities respond rapidly and reasonably to significant developments." They cited that after speeches by Federal Reserve Governors Christopher Waller and Michelle Bowman, the implied probability of a rate cut in July rose to 25%, but then decreased after the June jobs report exceeded expectations. The researchers added: "Kalshi provides the fastest updating distribution available for many key macroeconomic indicators."
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