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New Techniques to Extract Market expectations from Financial Instruments

  • Söderlind, Paul

    ()

    (Department of Economics)

  • Svensson, Lars E.O.

    ()

    (Institute of International Economic Studies)

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 interewst rates, so as to extract expected future time-paths. Very recently, methods have been designed to extract not only the means but the whole (risk neutral) probability distribution from a set of option prices.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 142.

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Length: 47 pages
Date of creation: Dec 1996
Date of revision:
Publication status: Published in Journal of Monetary Economics, 1997, pages 383-429.
Handle: RePEc:hhs:hastef:0142
Contact details of provider: Postal:
The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

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