Trading Volume and Monetary Policy Surprises

High-frequency identification of the causal effects of monetary policy relies on measuring monetary policy surprises–changes in interest rate futures prices in narrow windows around FOMC announcements. This paper revisits two key assumptions in their construction: fixed event windows and fixed loadings across the term structure. I introduce the Volume-Based Monetary Policy Surprise (VBS), which determines announcement-specific event windows and loadings from observed trading volume. Relaxing these assumptions substantially increases the estimated effects of monetary policy: the VBS doubles the impact on Treasury yields and equity markets and generates sizable impacts on macroeconomic aggregates. The flexible event windows capture price discovery that often extends beyond conventional 30-minute windows. The flexible loadings naturally shift toward longer-dated contracts when the Federal Reserve relies on forward guidance about future policy.