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Non-Parametric and Neural Network Models of Inflation Changes

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  • Greg Tkacz

Abstract

Previous 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.

Suggested Citation

  • Greg Tkacz, 2000. "Non-Parametric and Neural Network Models of Inflation Changes," Staff Working Papers 00-7, Bank of Canada.
    • Handle: RePEc:bca:bocawp:00-7
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    References listed on IDEAS

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    Cited by:

    1. Martha Misas Arango & Enrique López Enciso & Pablo Querubín Borrero, 2002. "La Inflación en Colombia: Una Aproximación desde las Redes Neuronales," Borradores de Economia 3029, Banco de la Republica.
    2. Peter Sephton, 2005. "Forecasting inflation using the term structure and MARS," Applied Economics Letters, Taylor & Francis Journals, vol. 12(4), pages 199-202.
    3. Martha Misas Arango & Enrique López Enciso & Pablo Querubín Borrero, 2002. "La inflación en Colombia: una aproximación desde las redes neuronales," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 20(41-42), pages 143-214, June.
    4. Tkacz, Greg, 2004. "Inflation changes, yield spreads, and threshold effects," International Review of Economics & Finance, Elsevier, vol. 13(2), pages 187-199.

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    More about this item

    Keywords

    Economic models; Inflation and prices;

    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

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