Non-Parametric and Neural Network Models of Inflation Changes
AbstractPrevious studies have shown that interest rate yield spreads contain useful information about future changes in inflation. However, such studies have for the most part focused on linear models, ignoring potential non-linearities between interest rates and inflation. Using two different non-linear models, we find that the relationship between interest rate yield spreads and inflation changes for policy-relevant horizons in the United States is most pronounced at negative long-short yield spreads, and almost non-existent at positive values of the spread. These findings are consistent with studies noting asymmetric effects of monetary policy on the real economy.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 00-7.
Length: 26 pages
Date of creation: 2000
Date of revision:
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Economic models; Inflation and prices;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-07-03 (All new papers)
- NEP-ETS-2000-07-03 (Econometric Time Series)
- NEP-MON-2000-07-03 (Monetary Economics)
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- Tkacz, Greg, 2004.
"Inflation changes, yield spreads, and threshold effects,"
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- Peter Sephton, 2005. "Forecasting inflation using the term structure and MARS," Applied Economics Letters, Taylor & Francis Journals, vol. 12(4), pages 199-202.
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