A Note on Monetary Policy with Interest-Rate Contingent Claims as Indicators
7 Pages Posted: 22 Nov 2007
Date Written: January 13, 1999
In this paper, we consider the use of interest rate contingent claims as indicators for the monetary policy. We analyze two approaches: one based on the term structure of zero bonds and another based on interest-rate option derivatives. We show how traditional tools based on the Black framework could be biased to build indicators for monetary policy. In fact, the second approach could not be viewed as an alternative approach, but as a complementary approach of the term structure approach.
Keywords: Yield curve, Hull-White trinomial model, monetary policy
JEL Classification: G00
Suggested Citation: Suggested Citation