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Isolating a measure of inflation expectations for the South African financial market using forward interest rates

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Author Info
Monique Reid () (Department of Economics, University of Stellenbosch)
Abstract

The inflation expectations channel of the transmission mechanism is generally recognised as crucial for the implementation of modern monetary policy. This paper briefly reviews the practices commonly employed for measuring inflation expectations in South Africa and offers an additional method, which is market based. The methodologies of Nelson and Siegel (1987) and Svensson (1994) are applied to determine implied nominal and real forward interest rates. The difference between the nominal and real forward rates (called inflation compensation) on a particular day is then used as a proxy for the market’s inflation expectations. This measure should not be viewed as a substitute for other measures of inflation expectations, but should rather supplement these in order to offer an additional insight.

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File URL: http://www.ekon.sun.ac.za/wpapers/2009/wp092009/wp-09-2009.pdf
File Format: application/pdf
File Function: First version, 2009
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Publisher Info
Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 09/2009.

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Date of creation: 2009
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Handle: RePEc:sza:wpaper:wpapers81

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Related research
Keywords: South Africa; Inflation expectations; Monetary policy transmission mechanism; Implied forward rates; Term structure of interest rates;

Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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This page was last updated on 2009-11-28.

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