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Estimating and Interpreting Foreward Interest Rates: Sweden 1992-1994

1994; Federal Reserve Bank of St. Louis; Linguagem: Inglês

Lars E.O. Svensson,

Financial Risk and Volatility Modeling

The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden 1992-1994 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.