Download or read book The Term Structure of Real Rates and Expected Inflation written by Geert Bekaert and published by . This book was released on 2011 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Changes in nominal interest rates must be due to either movements in real interest rates or expected inflation, or both. We develop a term structure model with regime switches, time-varying prices of risk and inflation to identify these components of the nominal yield curve. We find that the unconditional real rate curve is fairly flat at 1.44%, but slightly humped. In one regime, the real term structure is steeply downward sloping. Real rates (nominal rates) are pro-cyclical (counter-cyclical) and inflation is negatively correlated with real rates. An inflation risk premium that increases with the horizon fully accounts for the generally upward sloping nominal term structure. We find that expected inflation drives about 80% of the variation of nominal yields at both short and long maturities, but during normal times, all of the variation of nominal term spreads is due to expected inflation and inflation risk.

Download or read book Inflation Expectations written by Peter J. N. Sinclair and published by Routledge. This book was released on 2009-12-16 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Download or read book Real Interest Rates Inflation and the Term Structure of Interest Rates written by Li-Hsueh Chen and published by . This book was released on 1998 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Beliefs About Inflation and the Term Structure of Interest Rates written by Philipp K. Illeditsch and published by . This book was released on 2020 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how differences in beliefs about expected inflation affect the nominal term structure when investors have “catching up with the Joneses” preferences. In the model, “catching up with the Joneses” preferences help to match the level and slope of yields as well as the level of yield volatilities. Disagreement about expected inflation helps to match the dynamics of yields and yield volatilities. Expected inflation disagreement induces a spillover effect to the real side of the economy with a strong impact on the real yield curve. When investors share common preferences over consumption relative to the habit with a coefficient of relative risk aversion greater than one, real average yields across all maturities rise as disagreement increases. Real yield volatilities also rise with disagreement. To develop intuition concerning the role of different beliefs between investors, we consider a case where the real and nominal term structures can be computed as weighted-averages of quadratic Gaussian term structure models. We numerically find increased disagreement about expected inflation between the investors increases nominal yields and nominal yield volatilities at all maturities. We find empirical support for these predictions.

Download or read book The Term Structure of Interest Rates and Inflation Forecast Targeting written by Sylvester C. W. Eijffinger and published by . This book was released on 2000 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Money Interest Rates and Inflation written by Frederic S. Mishkin and published by Edward Elgar Publishing. This book was released on 1993 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: Frederick Mishkin's work has been dedicated to understanding the relationship between money, interest rates and inflation. The 15 essays in this collection - unabashedly empirical and rigorous - include much of Professor Mishkin's most highly regarded work. Money, Interst Rates and Inflation offers a coherent and informative assessment of how monetary policy affects the economy. In addition, the essays in this collection illustrate how rational expectations econometrics can be used to answer basic questions in the monetary-macroeconomics and finance areas.

Download or read book A Multi country Study of the Information in the Term Structure about Future Inflation written by Frederic S. Mishkin and published by . This book was released on 1989 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides evidence on what the term structure (for maturities of twelve months or less) tells us about future inflation in ten OECD countries. The empirical results on the information in the term structure contrast with those that find that the level of interest rates help forecast the future level of inflation. Instead, they indicate that for the majority of the countries in the sample, the term structure does not contain a great deal of information about the future path of inflation. The results for France, the United Kingdom and Germany tell a different story, however. In these countries, the term structure contains a highly significant amount of information about future changes in inflation. The evidence in this paper suggests that central banks for most of the countries studied here should exercise some caution in using the term structure of interest rates as a guide for assessing inflationary pressures in the economy, as is currently under consideration in the U.S. central bank. Although there is significant information in the term structure about the future path of inflation for a few of the countries, this is not a result that is true in general. The empirical evidence does reveal, however, that for every country studied except the United Kingdom, there is a great deal of information in the term structure of nominal' interest rates about the term structure of real' interest rates. This finding is an extremely useful one because it suggests that for most countries researchers can examine observable data on the nominal term structure to provide them with information about the behavior of the real' term structure.

Download or read book The Cyclical Behavior of the Term Structure of Interest Rates written by Reuben A. Kessel and published by . This book was released on 1965 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Estimating Parameters of Short Term Real Interest Rate Models written by Mr.Vadim Khramov and published by International Monetary Fund. This book was released on 2013-10-17 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.

Download or read book The Term Structure of Interest Rates as an Indicator of Expected Inflation written by Christian Mose Nielsen and published by . This book was released on 2004 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Monetary Policy Regimes Expected Inflation and the Response of Interest Rates to Money Announcements written by V. Vance Roley and published by . This book was released on 1983 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the response of the term structure of interest rates to weekly money announcements. Estimated responses for both the pre- and post-October 1979 periods are first presented. Then, two competing hypotheses involving the policy anticipations and expected inflation effects are formally specified and compared to the estimated responses. Both hypotheses are found to be consistent with the responses, but they have sharply different implications about the Federal Reserve's short-run monetary policy. The expected inflation hypothesis implies that weekly money surprises should have persistent effects on the level of the money stock, reflecting shifts in the Federal Reserve's long-run target. In contrast, the policy anticipations hypothesis implies that the effectof money surprises should diminish over time, reflecting the Federal Reserve's desire to offset deviations from target. Additional empirical results reported in the paper support this latter description of the money stock process.

Download or read book Deriving Agents Inflation Forecasts from the Term Structure of Interest Rates written by Christopher Ragan and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, the author uses the term structure of nominal interest rates to construct estimates of agents' expectations of inflation over several medium-term forecast horizons. The Expectations Hypothesis is imposed together with the assumption that expected future real interest rates are given by current real rates. Under these maintained assumptions, it is possible to compare the nominal yields on two assets of different maturities and attribute the difference in nominal yields to differences in expected inflation over the two horizons (assuming a constant term premium). The results for the United States and Canada over the past several years suggest that there is a significant static element to agents' inflation expectations.

Download or read book The Term Structure of Interst Rates as an Indicator of Expected Inflation written by Christian Mose Nielsen and published by . This book was released on 2004 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Indicator of Future Inflation Extracted from the Steepness of the Interest Rate Yield Curve Along Its Entire Length written by Jeffrey A. Frankel and published by . This book was released on 1991 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is often suggested that the slope of the term structure of interest rates contains information about the expected future path of inflation. Mishkin (1990) has recently shown that the spread between the 12-month and 3-month interest rates helps to predict the difference between the 12-month and 3-month inflation rates. His approach however, lacks a theoretical foundation, other than the (rejected) hypothesis that the real interest rate is constant. This paper applies a simple existing theoretical framework, which allows the real interest rate to vary in the short run but converge to a constant in the long run, to the problem of predicting the inflation spread. It is shown that the appropriate indicator of expected inflation can make use of the entire length of the yield curve, in particular by estimating the steepness of a specific nonlinear transformation of the curve, rather than being restricted to a spread between two points. The resulting indicator, besides having a firmer theoretical foundation does a relatively good job of predicting the inflation rate over the period 1960 to 1988.

Download or read book Inflation Risk Premia in the Term Structure of Interest Rates written by Peter Hördahl and published by . This book was released on 2007 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This paper estimates the size and dynamics of inflation risk premia in the euro area, based on a joint model of macroeconomic and term structure dynamics. Information from both nominal and index-linked yields is used in the empirical analysis. Our results indicate that term premia in the euro area yield curve reflect predominantly real risks, i.e. risks which affect the returns on both nominal and index-linked bonds. On average, inflation risk premia were negligible during the EMU period but occasionally subject to statistically significant fluctuations in 2004-2006. Movements in the raw break-even rate appear to have mostly reflected such variations in inflation risk premia, while long-term inflation expectations have remained remarkably anchored from 1999 to date." - - Abstract.

Download or read book Global Factors in the Term Structure of Interest Rates written by Mirko Abbritti and published by International Monetary Fund. This book was released on 2013-11-05 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces global factors within a FAVAR framework in an empirical affine term structure model. We apply our method to a panel of international yield curves and show that global factors account for more than 80 percent of term premia in advanced economies. In particular they tend to explain long-term dynamics in yield curves, as opposed to domestic factors which are instead more relevant to short-run movements. We uncover the key role for global curvature in shaping term premia dynamics. We show that this novel factor precedes global economic and financial instability. In particular, it coincides with immediate expectations of permanent expansionary monetary policy during the recent crisis.

Download or read book Inflation Fisher Equation and the Term Structure of Inflation Risk Premia written by Ren-Raw Chen and published by . This book was released on 2010 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study inflation risk and the term structure of inflation risk premia in the U.S. nominal interest rates through the Treasury Inflation Protection Securities (TIPS) and an analytical two-factor Cox-Ingersoll-Ross (CIR) model with correlated real rate and inflation. The analytical formula facilitates the estimation of the model parameters and improves the accuracy of the valuation of nominal rates and TIPS, and especially enables us to estimate the term structure of inflation risk premia.We use the two-factor model to evaluate the inflation-index bonds and study the relationship between the real rate and the expected inflation rate implied by the nominal Constant Maturity Treasury (CMT) rates for the period of January 1998 through December 2004. We use the Unscented Kalman Filter (UKF) to estimate the model and the inflation risk premium. The empirical evidence indicates that the expected inflation rate, as opposed to those derived from the consumer price indexes, is very stable and the inflation risk premia demonstrate a steep term structure.