Fed's Kocherlakota Says Derivatives Useful in Outlook

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said policy makers should use prices in financial markets to help form their outlook.

“Policy makers can achieve better outcomes by basing their outlooks on risk-neutral probabilities derived from the prices of financial derivatives,” Kocherlakota said in remarks prepared for a speech today in Minneapolis. “Because they are derived from market prices, risk-neutral probabilities provide the needed information about the relative values of resources in different states of the world in a way that purely statistical forecasts cannot.”

The Minneapolis Fed chief, who isn’t a voting member of the policy-setting Federal Open Market Committee this year, was speaking to the Financial Intermediation Research Society Conference. He did not comment on the U.S. economy.

To contact the reporter on this story: Aki Ito in San Francisco at aito16@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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