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Monetary Policy with Flexible Exchange Rates and Forward Interest Rates as Indicators

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  • Lars E.O. Svensson

Abstract

In the new situation with flexible exchange rates, monetary policy in Europe will have to rely more on indicators than previously under fixed rates. One of the potential indicators, the forward interest rate curve, can be used to indicate market expectations of the time-paths of future short interest rates, monetary policy, inflation rates and currency depreciation rates. The forward rate curve separates market expectations for the short, medium and long term more easily than the standard yield curve. Monetary policy in France, Germany, Great Britain, Sweden and the United States is interpreted with the help of forward rates.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4633.

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Date of creation: Jan 1994
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Publication status: published as Banque de France, Cahiers economiques et monetaires, ed. Jean-Marie Roux,vol. 43, no. 0396-4701, pp 305-332, (1994)
Handle: RePEc:nbr:nberwo:4633

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  1. Bennett T. McCallum, 1989. "Targets, Indicators, and Instruments of Monetary Policy," NBER Working Papers 3047, National Bureau of Economic Research, Inc.
  2. Friedman, Benjamin M., 1990. "Targets and instruments of monetary policy," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 22, pages 1185-1230 Elsevier.
  3. Svensson, Lars E. O., 1994. "Fixed exchange rates as a means to price stability: What have we learned?," European Economic Review, Elsevier, vol. 38(3-4), pages 447-468, April.
  4. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
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