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The information content of the German term structure regarding inflation

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  • Sebastian Schich
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    Abstract

    The paper investigates the information content of the German term structure regarding inflation, defined as the ability of the yield curve's slope to predict future changes in inflation rates. The empirical tests show that the German yield curve is informative in that sense, especially in its middle segment between three and eight years. A new robustness test is considered. Besides the specification in terms of yields-to-maturity, which has traditionally been employed by the Bundesbank and by previous empirical research, zero-coupon rates (are considered) estimated using the Svensson (IMF Working Paper No. 114, 1994) approach. This takes account of the fact that tests of the expectations hypothesis are in fact tests of joint hypotheses, among them, that the yield curve specification used gives an unbiased picture of the relevant information and that the specific formulation of the expectations hypothesis is valid. Despite the considerable differences between the two yield curve specifications, the results regarding the information content are overall robust with respect to the choice of the specification.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/096031099332276
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 9 (1999)
    Issue (Month): 4 ()
    Pages: 385-395

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    Handle: RePEc:taf:apfiec:v:9:y:1999:i:4:p:385-395

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    Cited by:
    1. Holmes, Mark J. & Maghrebi, Nabil, 2008. "Is there a connection between monetary unification and real economic integration? Evidence from regime-switching stationarity tests," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 958-970, October.
    2. Harald Grech, 2004. "What Do German Short-Term Interest Rates Tell Us About Future Inflation?," Working Papers 94, Oesterreichische Nationalbank (Austrian Central Bank).
    3. Luis Eduardo Arango & Luis Fernando Melo, 2002. "Estimación de la Estructura a Plazo de las Tasas de Interés en Colombia," BORRADORES DE ECONOMIA 002594, BANCO DE LA REPÚBLICA.
    4. Leo Krippner, 2005. "Investigating the Relationships between the Yield Curve, Output and Inflation using an Arbitrage-Free Version of the Nelson and Siegel Class of Yield Curve Models," Working Papers in Economics 05/02, University of Waikato, Department of Economics.
    5. Holmes, Mark J. & Dutu, Richard & Cui, Xiaoman, 2009. "Real interest rates, inflation and the open economy: A regime-switching perspective on Australia and New Zealand," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 351-360, March.
    6. Angélica Arosemena, . "Lecturas Alternativas de la Estructura a Plazo: Una Breve Revisión de literatura," Borradores de Economia 223, Banco de la Republica de Colombia.
    7. van Bergeijk, Peter A. G. & Berk, Jan Marc, 2000. "Is the yield curve a useful Information variable for the Eurosystem?," Working Paper Series 0011, European Central Bank.
    8. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, August.
    9. Luis Eduardo Arango & Luz Adriana Flórez, . "Tramo Corto de la Curva de Rendimientos, Cambio de Régimen Inflacionario y Expectativas de Inflación en Colombia," Borradores de Economia 360, Banco de la Republica de Colombia.
    10. Holmes, Mark J., 2002. "Does long-run real interest parity hold among EU countries? Some new panel data evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(4), pages 733-746.

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