Signal Extraction From The Bond Market And Inflation Forecasting In Nigeria

Signal Extraction From The Bond Market And Inflation Forecasting In Nigeria

Abstract

There’s the global recognition of the significance of prospects in the conduct of financial policy, which can be attributed to the growth of fiscal requests, and the fact that profitable fundamentals are driven, by prospects of the request agents. In an ever changing profitable and fiscal terrain, the CBN would bear all the information it can get to respond to these changes in agreement with its policy objects. Some of similar information can be sourced from the bond request. The study seeks to examine the extent to which the information on private sector prospects of affectation which is contained in the yield wind that can ameliorate affectation cast. This would accordingly increase the information set available to the CBN to read unborn affectation. The study is rested on the demesne that are enunciated in the prospects Theory of Term Structure of Interest Rates. The proposition suggests that interest rates and prices are driven byexpectations.VAR model was estimated using daily data on security prices, affectation, MPR, and exchange rate for the period of 2006- 2013. The study finds that( i) there’s information about private sector anticipation bedded in the yield angles( ii) the deputy for anticipation( storeroom bills with 90 days maturity) has a significant effect on affectation in Nigeria( iii) the yield spread can indeed ameliorate affectation cast in Nigeria. The study concludes that the information bedded in the prices of securities can ameliorate affectation cast and financial policy in Nigeria. From these findings, the study recommends that CBN should increase effectiveness and effectiveness of financial policy through the addition of the yield wind in modeling affectation in Nigeria. likewise, government in collaboration with the Central Bank of Nigeria should take effective measures to ameliorate liquidity in the bond request which frequently disrupt the information signals set up in security prices.