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Extracting Information from Financial Market Instruments

Author

Listed:
  • 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.

Suggested Citation

  • Richard Finlay & David Olivan, 2012. "Extracting Information from Financial Market Instruments," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 45-54, March.
    • Handle: RePEc:rba:rbabul:mar2012-06
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2012/mar/pdf/bu-0312-6.pdf
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    References listed on IDEAS

    as
    1. David Bolder & Scott Gusba, 2002. "Exponentials, Polynomials, and Fourier Series: More Yield Curve Modelling at the Bank of Canada," Staff Working Papers 02-29, Bank of Canada.
    2. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, February.
    3. 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.
    4. David Bolder & David Stréliski, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Tahlee Stone, 2016. "The Sensitivity of Personal Income to GDP Growth," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 1-9, December.
    2. Bobby Lien & Andrew Zurawski, 2012. "Liquidity in the Australian Treasury Bond Futures Market," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 49-58, June.
    3. Ryan Fox & Peter Tulip, 2014. "Is Housing Overvalued?," RBA Research Discussion Papers rdp2014-06, Reserve Bank of Australia.
    4. Angus Moore, 2016. "Measures of Inflation Expectations in Australia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 23-31, December.
    5. Rui Chen & Meng Wang & Jiri Svec, 2017. "Australian Bond Excess Returns: An Asset Allocation Perspective," Australian Economic Papers, Wiley Blackwell, vol. 56(2), pages 163-173, June.

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