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New Techniques to Extract Market Expectations from Financial Instruments

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Author Info
Söderlind, Paul
Svensson, Lars E O

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Abstract

This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates and inflation. More recently, these methods have been refined to rely on implied forward interest rates, so as to extract expected future time-paths. Very recently, methods have been designed to extract not only the means, but also the whole (risk neutral) probability distribution from a set of option prices.

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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1556.

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Date of creation: Jan 1997
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Handle: RePEc:cpr:ceprdp:1556

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Related research
Keywords: Exchange Rates; Forward Rate Curve; Inflation; Interest Rates; Options; Risk Neutral Distribution;

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

References listed on IDEAS
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  1. Backus, David K. & Gregory, Allan W. & Zin, Stanley E., 1989. "Risk premiums in the term structure : Evidence from artificial economies," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 371-399, November. [Downloadable!] (restricted)
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  2. Backus, David K & Gregory, Allan W & Telmer, Chris I, 1993. " Accounting for Forward Rates in Markets for Foreign Currency," Journal of Finance, American Finance Association, vol. 48(5), pages 1887-1908, December. [Downloadable!] (restricted)
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  3. David Backus & Silverio Foresi & Chris Telmer, 1996. "Affine Models of Currency Pricing," NBER Working Papers 5623, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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