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What Do German Short-Term Interest Rates Tell Us About Future Inflation?

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Author Info
Harald Grech () (Oesterreichische Nationalbank, Economic Studies Division)
Abstract

In this paper, the author empirically assesses the predictive power of short-term interest rates and term spreads for future inflation in Germany. Based on a multivariate term structure framework, a vector error forecasting equation for inflation forecasts of up to two years is constructed. The results of the alternative error correction reveal that the level of the shortterm interest rates conveys much more information on future inflation than the yield curve spreads. In particular, the one-month and three-month nominal interest rates seem to be informative on future inflation at a two-year horizon.

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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 94.

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Length: 45 pages
Date of creation: 31 Dec 2004
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Handle: RePEc:onb:oenbwp:94

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Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
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Keywords: inflation interest rates

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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  20. Smets, Frank & Tsatsaronis, Kostas, 1997. "Why Does the Yield Curve Predict Economic Activity? Dissecting the Evidence for Germany and the United States," CEPR Discussion Papers 1758, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  21. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July. [Downloadable!] (restricted)
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