Estimating and Interpreting Forward Interest Rates: Sweden 1992-1994

September 1, 1994

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden 1992-1994 as an example. The forward rates are interpreted as indicating market expectations of the time-path of future interest rates, future inflation rates, and future currency depreciation rates. They separate market expectations for the short-, medium-, and long-term more easily than the standard yield curve. Forward rates are estimated with an extended and more flexible version of Nelson and Siegel’s functional form.

Subject: Bonds, Financial institutions, Financial services, Futures, Inflation, National accounts, Prices, Return on investment, Yield curve

Keywords: Bonds, Europe, Futures, Inflation, inflation expectation, inflation rate, marginal lending rate, maturity date, monetary policy, Return on investment, risk premium, short interest, spot rate, WP, Yield curve

Pages:
76
Volume:
1994
DOI:
https://doi.org/10.5089/9781451853759.001
Issue:
114
Series:
Working Paper No. 1994/114
Stock No:
WPIEA1141994
ISBN:
9781451853759
ISSN:
1018-5941

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