Implied monetary policy extracted from interest rate swaps in Chile
Abstract: This article describes a methodology that uses interest rate swaps in Chilean Pesos to extract monetary policy paths, as well as their probability, with nodes on future Central Bank meetings. It is concluded that implied policy paths contain term premiums that correlate with the policy cyc...
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| Lenguaje: | English |
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ILADES. Universidad Alberto Hurtado.
2020
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oai:scielo:S0718-887020200002000032020-10-26Implied monetary policy extracted from interest rate swaps in ChileCalcagni T.,Rodrigo Monetary policy interest rate swaps term premium implied rates of monetary policy swap cámara promedio Abstract: This article describes a methodology that uses interest rate swaps in Chilean Pesos to extract monetary policy paths, as well as their probability, with nodes on future Central Bank meetings. It is concluded that implied policy paths contain term premiums that correlate with the policy cycle. Accordingly, implied paths have consistently overestimated the future path of future interest rates, pricing hikes more often than cuts and underestimating the likelihood of rates becoming more expansionary. Moreover, the level of implied rates has been governed by the front end of the curve, instead of expectations of the economic cycle. The result is that extracting implied rates from the swap curve is an ineffective tool for forecasting, and that the swap curve has not been able to anticipate changes in policy. These findings provide insights on the asymmetrical risk profile of future monetary policy and may contribute to the design of hedging strategies.info:eu-repo/semantics/openAccessILADES. Universidad Alberto Hurtado.Revista de análisis económico v.35 n.2 20202020-10-01text/htmlhttp://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-88702020000200003en10.4067/S0718-88702020000200003 |
| institution |
Scielo Chile |
| collection |
Scielo Chile |
| language |
English |
| topic |
Monetary policy interest rate swaps term premium implied rates of monetary policy swap cámara promedio |
| spellingShingle |
Monetary policy interest rate swaps term premium implied rates of monetary policy swap cámara promedio Calcagni T.,Rodrigo Implied monetary policy extracted from interest rate swaps in Chile |
| description |
Abstract: This article describes a methodology that uses interest rate swaps in Chilean Pesos to extract monetary policy paths, as well as their probability, with nodes on future Central Bank meetings. It is concluded that implied policy paths contain term premiums that correlate with the policy cycle. Accordingly, implied paths have consistently overestimated the future path of future interest rates, pricing hikes more often than cuts and underestimating the likelihood of rates becoming more expansionary. Moreover, the level of implied rates has been governed by the front end of the curve, instead of expectations of the economic cycle. The result is that extracting implied rates from the swap curve is an ineffective tool for forecasting, and that the swap curve has not been able to anticipate changes in policy. These findings provide insights on the asymmetrical risk profile of future monetary policy and may contribute to the design of hedging strategies. |
| author |
Calcagni T.,Rodrigo |
| author_facet |
Calcagni T.,Rodrigo |
| author_sort |
Calcagni T.,Rodrigo |
| title |
Implied monetary policy extracted from interest rate swaps in Chile |
| title_short |
Implied monetary policy extracted from interest rate swaps in Chile |
| title_full |
Implied monetary policy extracted from interest rate swaps in Chile |
| title_fullStr |
Implied monetary policy extracted from interest rate swaps in Chile |
| title_full_unstemmed |
Implied monetary policy extracted from interest rate swaps in Chile |
| title_sort |
implied monetary policy extracted from interest rate swaps in chile |
| publisher |
ILADES. Universidad Alberto Hurtado. |
| publishDate |
2020 |
| url |
http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-88702020000200003 |
| work_keys_str_mv |
AT calcagnitrodrigo impliedmonetarypolicyextractedfrominterestrateswapsinchile |
| _version_ |
1714206220562202624 |