Central Bank Policy and
Short Rate Strategy

This one day course will provide participants with a framework to formulate strategy using short-term interest rate instruments. It considers the setting of interest rates by central banks, how to monitor central bank policy and how to read the expectations priced into the market. Some prior knowledge of money market cash and derivative products is assumed. Active participation in a workshop setting is encouraged.

Available for in-house delivery. Call +44 (0)1483 573150
Duration: One day (9.00am to 5.00pm)
Location: In-house
Trainer: Andrew Bevan
Please contact us for a quotation

Course Outline

Modern Central Bank Policy – Morning Session 1

+ How central banks set short-term interest rates
+ Targets and instruments of monetary policy
+ Brief history of monetary policy in the major economies
+ Inflation targeting – excess demand and the 'output gap'
+ Operation of rules versus discretion – the Taylor Rule
+ Asset prices and the 'transmission mechanism'
+ Interest rates in an open economy
+ Financial conditions and the response to 'bubbles'
+ The recent crisis – policy and regulatory initiatives

Modern Central Bank Policy – Morning Session 2

+ Legal framework and structure of the Federal Reserve
+ FOMC meetings and minutes – how to monitor the Fed
+ Structure and policy implementation of the ECB
+ How to monitor the ECB – is the ECB transparent?
+ Structure and policy implementation of the Bank of England
+ Communication strategy and the role of expectations
+ Market-based measures of policy expectations
+ Using options to infer the short rate probability distribution
+ Forward rates as predictors of future spot interest rates
+ Measurement and determination of the risk premium
+ WORKSHOP: Shadow Central Bank Meeting

Instruments and Strategies – Afternoon Session 1

+ Spot and forward interest rates
+ Treasury Bills and Certificates of Deposit
+ Repurchase Agreements
+ Forwards and futures – institutional arrangements
+ Forward Rate Agreements
+ STIR Futures – principal contracts and pricing
+ Overnight Index Swaps – central bank meetings
+ WORKSHOP: Forwards and Futures

Instruments and Strategies – Afternoon Session 2

+ Market directional views – outright trading
+ Spread Trades – cross-country views
+ Calendar Spreads – path of interest rate forwards
+ Box Trades – cross-country forward views
+ TED spread and credit risk
+ LIBOR-OIS and counterparty risk
+ Current Views