Measuring monetary policy expectations from financial market instruments

Arbeitspapier

This paper reviews the main instruments and associated yield curves that can be used to measure financial market participants’ expectations of future UK monetary policy rates. We attempt to evaluate these instruments and curves in terms of their ability to forecast policy rates over the period from October 1992, when the United Kingdom first adopted an explicit inflation target, to March 2007. We also investigate several model-based methods of estimating forward term premia, in order to calculate riskadjusted forward interest rates. On the basis of both in and out-of-sample test results, we conclude that, given the uncertainties involved, it is unwise to rely on any one technique to measure policy rate expectations and that the best approach is to take an inclusive approach, using a variety of methods and information.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 978

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; Monetary Policy
• Subject: forecasting ; Interest Rates ; term premia ; Geldpolitik ; Inflationssteuerung ; Erwartungsbildung ; Großbritannien

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Joyce, Michael ; Relleen, Jonathan ; Sorensen, Steffen
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/153412
• Last update: 10.03.2025, 11:41 AM CET