- Set by U.S. Federal Reserve on a 5% p.a NGDP per capita growth path. Contract cannot trade at any other price as U.S. federal reserve promises to buy unlimited quantities of contract at this price.
- (This was by Bill Woosley in the comments section at MR and not Scott S in his post) Set by U.S. Federal Reserve on a 5% p.a NGDP per capita growth path until 9 months before contract expiration. Contract cannot trade at any other price as U.S. federal reserve promises to buy unlimited quantities of contract at this price. When expiration is closer than 9 months, contract is allowed to float in price, and fed no longer counts this open interest to the net open interest for the related open market operations.
Contract Specifications for NGDP Futures
I know, this is beating an issue into the ground.
Here is something I’ve put together on the contract specs for NGDP futures. It’s clear I am not a fan of NGDP futures, but Scott Sumner complained I didn’t bother reading his papers on NGDP futures.
He’s right. I did not spend the money to go and read these papers. I relied on information from his blog to piece together his vision of NGDP futures. In particular, I relied on a post from May of 2009 to get his basic picture of NGDP futures.
Here are what I assume would be his contract specifications for NGDP futures, based on my reading of the May 2009 post.
This post is mostly a holder of information so we know the specs for these futures.
Settlement Value: Bureau of Economic Analysis NGDP Table 3 times 1/1,000,000,000,000, rounded to the nearest .01 (This contract size is far too low)
Price Quote: Dollars and cents to hundredths of a cent. Example Value: 15,585.6 (from BEA Table 3 Line 1) * 1,000,000,000 = 15,585,600,000,000/1,000,000,000,000 = $15.5856
Tick Size (Minimum Fluctuation): 1/10,000 (one ten thousandth) of a dollar.
Tick Value: $.0001
Contract Months: The first 12 contract months in the quarterly January, April, July, October cycle. Three years of quarterly NGDP futures contracts.
Last Trading Day: Release date of Preliminary last Quarter GDP Report. Trading in expiring contract closes at 7:29am Central Time on the last trading day.
Margin: 10% of full contract value (Instead of normal futures margin calculations)
Margin Interest Rate: To be set by U.S. Federal Reserve at a rate high enough to insure sufficient liquidity
Market Maker: U.S. Federal Reserve
Contract Price: Two possibilities
Open Market Operations: Federal Reserve performs open market operations based on net open interest across all active contracts long/short at a 5:1 ratio. Example: Net futures position held by public is short $500m notional value of NGDP futures, so U.S. Fed purchases $2.5bn of T-Bills in response.