Extracting Information from Financial Market Instruments

Richard Finlay and David Olivan
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David Olivan: Reserve Bank of Australia

RBA Bulletin (Print copy discontinued), 2012, 45-54

Abstract: Financial market prices contain information about market expectations for economic variables, such as inflation or the cash rate, that are of interest to policymakers. This article describes four financial market instruments that are particularly useful for this, and documents how market expectations and other useful information can be derived from them. In particular, it describes how overnight indexed swap rates and government bond yields can be used to estimate a zero-coupon yield curve and infer market expectations for risk-free interest rates, and how inflation swap rates and inflation-indexed government bond yields can be used to infer market expectations for the inflation rate.

Keywords: Breakeven inflation; cash rate expectations; inflation expectations; inflation swaps; OIS; zero-coupon yields (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (5)

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