Economic Derivatives Made Easy

Here is a one page introduction to New Uses for New Macro Derivatives (hat tip Economist’s View).

Derivatives help investors hedge their portfolios against uncertainties. But they can also be used for economic forecasting, since their prices reflect the joint best estimates of of many traders. Predictions based on economic derivatives are probably at least as good as predictions based on surveys or models of the economy.

“Rather than work through a complicated model of the economy, it is more accurate (and surely quicker!) simply to look to the prices in economic derivatives markets to assess the likelihood of various outcomes.”

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