Measuring Expected Inflation and the Ex-Ante Real Interest Rate in the Euro Area Using Structural Vector Autoregressions
AbstractIn this paper, the structural vector autoregression methodology is used to decompose the euro area nominal short-term interest rate into an expected inflation and an ex-ante real interest rate component. The latter may be a useful indicator of the monetary policy stance of the ECB. To this end, a vector autoregression model comprised of the differenced interest rate series and the stationary component of the real interest rate is estimated and shocks to expected inflation and the ex-ante real rate are identified using the long-run restriction that only shocks to expected inflation have long-run effects on the nominal interest rate.
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1067.
Length: 18 pages
Date of creation: Jul 2001
Date of revision:
Monetary policy stance; Inflation expectations; Structural vector autoregressive model;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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