Interest Rates and the Subjective Probability Distribution of Inflation Forecasts
The interst rate effects of the first four moments of the subjective probability distribution of inflation forecasts from the ASA-NBER survey are examined over the period 1968:4-1985:4. Using Tre asury bill yields as the nominal rate variable in the context of a re duced form Fisher equation, the authors find that inflation uncertain ty, as measured by the average variance of the probability distributi ons of inflation forecasts, to be insignificant. However, the average skewness and kurtosis variables which result from these probability distributions do significantly affect interest rates. They interpret these effects as accounting for the level of risk or uncertainty abou t future inflation. Copyright 1988 by Ohio State University Press.
Volume (Year): 20 (1988)
Issue (Month): 2 (May)
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