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Central bank policy paths and market forward rates: A simple model

Author

Listed:
  • De Graeve, Ferre

    () (Research Department, Central Bank of Sweden)

  • Iversen, Jens

    () (Monetary Policy Department, Central Bank of Sweden)

Abstract

Increasingly many central banks announce likely paths for future policy rates. Re- cent experience suggest that market forward rates can differ substantially from those announced. Models commonly adopted in policy analysis ignore such differences. This paper studies a simple model that can capture deviations between announced paths and market forward rates. We detail the macroeconomic transmission of such deviations both in the model and in the data and show how the model can inform policy deliberations.

Suggested Citation

  • De Graeve, Ferre & Iversen, Jens, 2015. "Central bank policy paths and market forward rates: A simple model," Working Paper Series 303, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0303
    as

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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2015/rap_wp303_150701.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Policy path; forward rate; forward guidance;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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