AURA-FED Methodology

Overview

AURA-FED measures observable uncertainty in U.S. Federal Reserve policy-rate decisions, derived from contract prices on Kalshi and Polymarket that resolve on Fed funds rate target ranges, FOMC outcomes, and emergency-action events. The construction reads market prices as quoted; no analyst forecast, sentiment scoring, or model-implied path enters the index between the contract and the published level.

Construction

The core primitive is σ_bp: the basis-point standard deviation of each contract family’s implied policy-rate distribution. Family-level σ_bp values are open-interest-weighted across the in-scope universe at three horizons (Near-Term: 0–90 days; Path: 91–365 days; Terminal: >365 days) to produce horizon-level dispersion. Near-Term and Path combine into the published Headline. Wasserstein-1 distance between consecutive-day distributions, computed on the basis-point grid, is published as a companion measure of daily repricing intensity.

Scope & exclusions

In scope: Kalshi’s KXFED, KXFEDDECISION, KXFEDMEET, and KXEMERCUTS contract families; Polymarket’s PM-FED-DECISION-* and PM-FED-NCUTS-* families. Single-binary tail families (KXFEDMEET-27, KXEMERCUTS-26) are retained for the tail-share decomposition (§7.6 / §8.5) but excluded from level-dispersion aggregation per §6.3.4. Their resolution criteria do not specify rate-action magnitudes, so a Bernoulli-σ proxy would impose an assumption the contracts do not support.

Out of scope and reserved for documented roadmap extensions (§11): balance-sheet operations (QT pace, runoff schedules), standing-facility usage (SRF, RRP, reserve levels), and macroeconomic-outcome contracts (CPI prints, GDP, unemployment).

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