Knowing how expectations are formed in the financial markets is crucial to understanding how financial markets work. Although the market price itself reflects to some extent expectations, market expectations cannot be observed directly. Nonetheless, different strategies remain to investigate expectations in financial markets in more detail. This book uses survey data which allow a detailed analysis of market’s expectations since it provides information of expectations of individual economic agents. This book focuses on the two major financial markets in terms of trading volume, namely the foreign exchange market and the money market. Since these markets can be regarded as highly liquid and market participants have equal access to information both markets can be regarded as appropriate candidates to investigate the expectation formation process.
Frankfurt am Main, Berlin, Bern, Bruxelles, New York, Oxford, Wien, 2009. 142 pp., num. tables and graphs
Contents: Expectation formation process – Foreign exchange market – Money market – Heterogeneity in financial markets
– Rationality, unbiasedness and consistency of forecasts – Central bank credibility – Inflation targeting – Ex-ante Taylor