Paul Söderlind and Lars E.O. Svensson
Department of Economics, Stockholm School of Economics;
and Institute for International Economic Studies, Stockholm University
Journal of Monetary Economics 40(2) (1997), 373-429
This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates and inflation. More recently, these methods have been refined to rely on implied forward interest rates, so as to extract expected future time-paths. Very recently, methods have been designed to extract not only the means but the whole (risk neutral) probability distribution from a set of option prices.
JEL classification: E43, E52, G13
- Sample programs for estimating the term structure of interest rates
- Please contact Paul Söderlind for sample programs for estimating implied probability distributions from option prices