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Optimal policy and market-based expectations

Author

Listed:
  • Michael D. Bauer
  • Glenn D. Rudebusch

Abstract

Financial market prices contain valuable information about investors? views regarding future interest rates, inflation, and other economic variables. However, such market-based expectations can be hard to interpret because changes in risk and liquidity premiums also affect asset prices. In practice, policymakers should be cautious in relying on the expectations information in market prices.

Suggested Citation

  • Michael D. Bauer & Glenn D. Rudebusch, 2015. "Optimal policy and market-based expectations," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00052
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    File URL: http://www.frbsf.org/economic-research/publications/economic-letter/2015/april/monetary-policy-market-based-expectations/el2015-12.pdf
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    Citations

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    Cited by:

    1. Woon Gyu Choi & Mr. David Cook, 2018. "Policy Conflicts and Inflation Targeting: The Role of Credit Markets," IMF Working Papers 2018/072, International Monetary Fund.
    2. Baranowski, Paweł & Doryń, Wirginia & Łyziak, Tomasz & Stanisławska, Ewa, 2021. "Words and deeds in managing expectations: Empirical evidence from an inflation targeting economy," Economic Modelling, Elsevier, vol. 95(C), pages 49-67.
    3. Jens H. E. Christensen & Jose A. Lopez, 2016. "Differing views on long-term inflation expectations," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    4. Dash, Pradyumna & Rohit, Abhishek Kumar & Devaguptapu, Adviti, 2020. "Assessing the (de-)anchoring of households’ long-term inflation expectations in the US," Journal of Macroeconomics, Elsevier, vol. 63(C).

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