DP1051 Estimating and Interpreting Forward Interest Rates: Sweden 1992-4
|Author(s):||Lars E.O. Svensson|
|Publication Date:||October 1994|
|Keyword(s):||Credibility, Inflation Expectations, Monetary Policy Indicators, Term Structure of Interest Rates|
|JEL(s):||E50, E52, F31, G12|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1051|
The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden between 1992 and 1994 as an example. The forward rates are interpreted as indicating market expectations of the time-path of future interest rates, future inflation rates, and future currency depreciation rates. They separate market expectations for the short, medium and long term more easily than the standard yield curve. Forward rates are estimated with an extended and more flexible version of Nelson and Siegel's functional form.