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Term Structures of Inflation Expectations and Real Interest Rates

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  • S. Borağan Aruoba

Abstract

I use a statistical model to combine various surveys to produce a term structure of inflation expectations—inflation expectations at any horizon—and an associated term structure of real interest rates. Inflation expectations extracted from this model track realized inflation quite well, and in terms of forecast accuracy, they are at par with or superior to some popular alternatives. The real interest rates obtained from the model follow Treasury Inflation-Protected Securities rates as well.

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  • S. Borağan Aruoba, 2020. "Term Structures of Inflation Expectations and Real Interest Rates," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(3), pages 542-553, July.
    • Handle: RePEc:taf:jnlbes:v:38:y:2020:i:3:p:542-553
    DOI: 10.1080/07350015.2018.1529599
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    Cited by:

    1. S Borağan Aruoba & Pablo Cuba-Borda & Frank Schorfheide, 2018. "Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 87-118.
    2. Jing Yuan & Yan Peng & Zongwu Cai & Zhengyi Zhang, 2021. "A Quantitative Evaluation to Interest Rate Marketization Reform in China," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202122, University of Kansas, Department of Economics.
    3. Gerlach, Stefan & Stuart, Rebecca, 2020. "What drives the FOMC’s dot plots?," Journal of International Money and Finance, Elsevier, vol. 104(C).
    4. Philippe Bacchetta & Kenza Benhima & Jean-Paul Renne, 2022. "Understanding Swiss real interest rates in a financially globalized world," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-17, December.
    5. Randal J. Verbrugge & Saeed Zaman, 2021. "Whose Inflation Expectations Best Predict Inflation?," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2021(19), pages 1-7, October.
    6. McNeil, James, 2023. "Monetary policy and the term structure of inflation expectations with information frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    7. Andrew B. Martinez, 2020. "Extracting Information from Different Expectations," Working Papers 2020-008, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
    8. Carola Binder & Tucker S. Mcelroy & Xuguang S. Sheng, 2022. "The Term Structure of Uncertainty: New Evidence from Survey Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(1), pages 39-71, February.
    9. You, Zhongyuan & Goodwin, Barry K. & Guney, Selin, 2023. "A semi-parametric study on dynamic linkages among international real interest rates," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 215-229.
    10. Richard K. Crump & Stefano Eusepi & Emanuel Moench, 2016. "The term structure of expectations and bond yields," Staff Reports 775, Federal Reserve Bank of New York.
    11. Richard K. Crump & Stefano Eusepi & Emanuel Moench & Bruce Preston, 2021. "The Term Structure of Expectations," Staff Reports 992, Federal Reserve Bank of New York.
    12. Mototsugu Shintani & Naoto Soma, 2020. "The Effects of QQE on Long-run Inflation Expectations in Japan," CARF F-Series CARF-F-494, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    13. Aruoba, S. Borağan, 2021. "Institutions, tax evasion, and optimal policy," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 212-229.
    14. Kapetanios, George & Maule, Becky & Young, Garry, 2016. "A new summary measure of inflation expectations," Economics Letters, Elsevier, vol. 149(C), pages 83-85.
    15. NAKAJIMA, Jouchi, 2023. "Estimating trend inflation in a regime-switching Phillips curve," Discussion Paper Series 750, Institute of Economic Research, Hitotsubashi University.
    16. Michelle Lewis & C. John McDermott, 2016. "New Zealand's experience with changing its inflation target and the impact on inflation expectations," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(3), pages 343-361, September.
    17. Todd E. Clark & Gergely Ganics & Elmar Mertens, 2022. "What is the Predictive Value of SPF Point and Density Forecasts?," Working Papers 22-37, Federal Reserve Bank of Cleveland.
    18. Todd E. Clark & Gergely Ganics & Elmar Mertens, 2022. "Constructing Fan Charts from the Ragged Edge of SPF Forecasts," Working Papers 22-36, Federal Reserve Bank of Cleveland.
    19. Carola Binder & Wesley Janson & Randal Verbrugge, 2023. "Out of Bounds: Do SPF Respondents Have Anchored Inflation Expectations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(2-3), pages 559-576, March.
    20. Cem Cakmakli & Hamza Demircan, 2020. "Using Survey Information for Improving the Density Nowcasting of US GDP with a Focus on Predictive Performance during Covid-19 Pandemic," Koç University-TUSIAD Economic Research Forum Working Papers 2016, Koc University-TUSIAD Economic Research Forum.
    21. Halberstadt, Arne & Krippner, Leo, 2016. "The effect of conventional and unconventional euro area monetary policy on macroeconomic variables," Discussion Papers 49/2016, Deutsche Bundesbank.
    22. Lansing, Kevin J., 2021. "Endogenous forecast switching near the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 153-169.
    23. Joshua C.C. Chan & Todd E. Clark & Gary Koop, 2018. "A New Model of Inflation, Trend Inflation, and Long‐Run Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(1), pages 5-53, February.
    24. Kenny, Geoff & Dovern, Jonas, 2017. "The long-term distribution of expected inflation in the euro area: what has changed since the great recession?," Working Paper Series 1999, European Central Bank.
    25. Jakob de Haan & Marco Hoeberichts & Renske Maas & Federica Teppa, 2016. "Inflation in the euro area and why it matters," DNB Occasional Studies 1403, Netherlands Central Bank, Research Department.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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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