An Empirical Investigation of Bond Prices and Inflation
AbstractThis paper investigates the dynamics of real interest rates and inflation in the context of an equilibrium asset pricing model. Formulas for bond prices and optimal forecasts of inflation are shown to form a state space system. The model’s parameters are estimated by maximum likelihood, using a Kalman filter to compute the likelihood function. The estimation uses time series data on Treasury bill prices of various maturities and survey forecasts of inflation. The results suggest chat the stochastic processes for real interest rates and expected inflation are mutually dependent; innovations in the processes display significant negative correlation while expected changes in each variable are significantly positively related to the level of the other variable. There is evidence that over the past decade inflation and real interest rates have displayed somewhat less mean reversion than previously. Distinguishing real rates from expected inflation is likely to lead to gains in interest rate modelling.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 17-88.
Date of creation:
Date of revision:
Contact details of provider:
Postal: 3254 Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104-6367
Phone: (215) 898-7616
Fax: (215) 573-8084
Web page: http://finance.wharton.upenn.edu/~rlwctr/
More information through EDIRC
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.