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Extracting Information from Financial Market Instruments

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Author Info

  • Richard Finlay

    (Reserve Bank of Australia)

  • David Olivan

    (Reserve Bank of Australia)

Abstract

Financial market prices contain information about market expectations for economic variables, such as inflation or the cash rate, that are of interest to policymakers. This article describes four financial market instruments that are particularly useful for this, and documents how market expectations and other useful information can be derived from them. In particular, it describes how overnight indexed swap rates and government bond yields can be used to estimate a zero-coupon yield curve and infer market expectations for risk-free interest rates, and how inflation swap rates and inflation-indexed government bond yields can be used to infer market expectations for the inflation rate.

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File URL: http://www.rba.gov.au/publications/bulletin/2012/mar/pdf/bu-0312-6.pdf
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Bibliographic Info

Article provided by Reserve Bank of Australia in its journal RBA Bulletin.

Volume (Year): (2012)
Issue (Month): (March)
Pages: 45-54

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Handle: RePEc:rba:rbabul:mar2012-06

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Related research

Keywords: Breakeven inflation; cash rate expectations; inflation expectations; inflation swaps; OIS; zero-coupon yields;

References

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  1. Spencer, Peter & Liu, Zhuoshi, 2010. "An open-economy macro-finance model of international interdependence: The OECD, US and the UK," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 667-680, March.
  2. Bolder, David & Streliski, David, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
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Cited by:
  1. Bobby Lien & Andrew Zurawski, 2012. "Liquidity in the Australian Treasury Bond Futures Market," RBA Bulletin, Reserve Bank of Australia, pages 49-58, June.

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