NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Monetary Policy with Flexible Exchange Rates and Forward Interest Rates as Indicators

Lars E.O. Svensson

NBER Working Paper No. 4633 (Also Reprint No. r1953)*
Issued in March 1995
NBER Program(s):   IFM    ME

In the new situation with flexible exchange rates, monetary policy in Europe will have to rely more on indicators than previously under fixed rates. One of the potential indicators, the forward interest rate curve, can be used to indicate market expectations of the time-paths of future short interest rates, monetary policy, inflation rates and currency depreciation rates. The forward rate curve separates market expectations for the short, medium and long term more easily than the standard yield curve. Monetary policy in France, Germany, Great Britain, Sweden and the United States is interpreted with the help of forward rates.

*Published: Banque de France, Cahiers economiques et monetaires, ed. Jean-Marie Roux,vol. 43, no. 0396-4701, pp 305-332, (1994)

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