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The common and speci fic components of inflation expectation across European countries

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  • Chen, Shi
  • Härdle, Wolfgang Karl
  • Wang, Weining

Abstract

Inflation expectation (IE) is often considered to be an important determinant of actual inflation in modern economic theory, we are interested in investigating the main risk factors that determine its dynamics. We fiirst apply a joint arbitrage-free term structure model across different European countries to obtain estimate for country-specific IE. Then we use the two-component and three-component models to capture the main risk factors. We discover that the extracted common trend for IE is an important driver for each country of interest. Moreover a spatial-temporal copula model is tted to account for the non-Gaussian dependency across countries. This paper aims to extract informative estimates for IE and provide good implications for monetary policies.

Suggested Citation

  • Chen, Shi & Härdle, Wolfgang Karl & Wang, Weining, 2020. "The common and speci fic components of inflation expectation across European countries," IRTG 1792 Discussion Papers 2020-023, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    • Handle: RePEc:zbw:irtgdp:2020023
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    More about this item

    Keywords

    in ation expectation; joint yield-curve modeling; factor model; common trend; spatial-temporal copulas;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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