Deriving a Market-Based Measure of Interest Rate Expectations

11 Pages Posted: 7 Apr 2005

See all articles by Chris Peacock

Chris Peacock

Bank of England - Monetary Analysis

Abstract

Forward rates are perhaps the most common measure of expected future interest rates. But the existence of a risk premium can drive a wedge between forward rates and what the market expects future rates to be. In this article we use survey data to derive an estimate of the risk premium. We find that the survey-based risk premium implies a significant and time-varying difference between forward rates and expected future interest rates. Consequently, this article sets out a simple model of the survey-based risk premium that can be used to generate a path for expected future interest rates on any particular day.

Suggested Citation

Peacock, Chris, Deriving a Market-Based Measure of Interest Rate Expectations. Bank of England Quarterly Bulletin, Summer 2004, Available at SSRN: https://ssrn.com/abstract=700123

Chris Peacock (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
245
Abstract Views
1,773
Rank
226,885
PlumX Metrics