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Computing Long-Term Market Inflation Expectations for Countries without Inflation Expectation Markets

Author

Listed:
  • Petra Gerlach-Kristen

    (Swiss National Bank)

  • Richhild Moessner

    (Bank for International Settlements)

  • Rina Rosenblatt-Wisch

    (Swiss National Bank)

Abstract

Central banks monitor long-term inflation expectations closely since they reflect credibility. In this paper, we derive daily market-based domestic long-term inflation expectations for eight countries without inflation swap markets. To do so, we use foreign inflation swaps together with foreign and domestic interest rate swaps assuming that purchasing power parity (PPP) and uncovered interest rate parity (UIP) hold or together with spot and forward exchange rates assuming that PPP, UIP and covered interest rate parity (CIP) hold. We confirm the plausibility of our PPP-UIP and PPP-UIC-CIP measures by also applying these methods for countries with inflation swap markets. We moreover illustrate how the data can be used to answer such questions as whether inflation reacts to long-term inflation expectations, whether these expectations are well-anchored and how long-term real interest rates have moved over the past decade.

Suggested Citation

  • Petra Gerlach-Kristen & Richhild Moessner & Rina Rosenblatt-Wisch, 2018. "Computing Long-Term Market Inflation Expectations for Countries without Inflation Expectation Markets," Russian Journal of Money and Finance, Bank of Russia, vol. 77(3), pages 23-48, September.
    • Handle: RePEc:bkr:journl:v:77:y:2018:i:3:p:23-48
    DOI: 10.31477/rjmf.201803.23
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    Cited by:

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    2. Lasha Arevadze & Tamta Sopromadze & Giorgi Tsutskiridze & Shalva Mkhatrishvili, 2020. "Identifying the Phillips Curve in Georgia," NBG Working Papers 01/2020, National Bank of Georgia.
    3. M. Abramova A. & S. Dubova E. & O. Zakharova V. & M. Yershov V. & O. Lavrushin I. & М. Абрамова А. & С. Дубова Е. & О. Захарова В. & М. Ершов В. & О. Лаврушин И., 2019. "Об основных направлениях единой государственной денежно-кредитной политики на 2019 год и период 2020 и 2021 годов: мнение экспертов Финансового университета // On the Guidelines for the Single State M," Экономика. Налоги. Право // Economics, taxes & law, ФГОБУ "Финансовый университет при Правительстве Российской Федерации" // Financial University under The Government of Russian Federation, vol. 12(1), pages 6-19.

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    More about this item

    Keywords

    inflation expectations; market-based inflation expectations; anchoring of inflation expectations; long-term real interest rates;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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