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Modeling the dynamics of inflation compensation

  • Jochmann, Markus
  • Koop, Gary
  • Potter, Simon M.

This paper investigates the relationship between short-term and long-term inflation expectations using daily data on inflation compensation derived from the term structure of real and nominal interest rates. We use a flexible econometric model which allows us to uncover this relationship in a data-based manner. We relate our findings to the issue of whether inflation expectations are anchored, unmoored or contained. Our empirical results indicate no support for either unmoored or firmly anchored inflation expectations. Most evidence indicates that inflation expectations are contained.

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File URL: http://www.sciencedirect.com/science/article/B6VFG-4X2JSVH-1/2/b032cca1bbd19e86db04bfb29d5cf12b
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Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 17 (2010)
Issue (Month): 1 (January)
Pages: 157-167

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Handle: RePEc:eee:empfin:v:17:y:2010:i:1:p:157-167
Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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  1. Jennifer Roush & William Dudley & Michelle Steinberg Ezer, 2008. "The case for TIPS: an examination of the costs and benefits," Staff Reports 353, Federal Reserve Bank of New York.
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  4. Jon Faust & Dale W. Henderson, 2004. "Is inflation targeting best-practice monetary policy?," International Finance Discussion Papers 807, Board of Governors of the Federal Reserve System (U.S.).
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  7. Schotman, Peter C. & Schweitzer, Mark, 2000. "Horizon sensitivity of the inflation hedge of stocks," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 301-315, November.
  8. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
  9. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
  10. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
  11. Refet S. Gürkaynak & Andrew T. Levin & Eric T. Swanson, 2006. "Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden," Working Paper Series 2006-09, Federal Reserve Bank of San Francisco.
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