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Uncovering Financial Markets Beliefs About Inflation Targets

  • Ruge-Murcia, F.J.

This paper exploits the term structure of interest rates to develop testable economic restrictions on the joint process of long-term interest rates and inflation when the latter is subject to a targeting policy by the Central Bank.

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Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 9803.

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Length: 37 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:mtl:montec:9803
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  6. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December.
  7. Ruge-Murcia, Francisco J., 1999. "Government expenditure and the dynamics of high inflation," Journal of Development Economics, Elsevier, vol. 58(2), pages 333-358, April.
  8. Soderlind, P & Svensson, L-E-O, 1996. "New Techniques to Extract Market Expectations from Financial Instruments," Papers 621, Stockholm - International Economic Studies.
  9. John Y. Campbell, 1995. "Some Lessons from the Yield Curve," Harvard Institute of Economic Research Working Papers 1713, Harvard - Institute of Economic Research.
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  12. Holt, Matthew T & Johnson, Stanley R, 1989. "Bounded Price Variation and Rational Expectations in an Endogenous Switching Model of the U.S. Corn Market," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 605-13, November.
  13. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc.
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  16. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 9-110.
  17. Pesaran, M. Hashem & Samiei, Hossein, 1995. "Limited-dependent rational expectations models with future expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1325-1353, November.
  18. Perrier, Patrick, 1998. "Un examen de la crédibilité de la politique monétaire au Canada," Staff Working Papers 98-12, Bank of Canada.
  19. Hamilton, James D, 1985. "Uncovering Financial Market Expectations of Inflation," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1224-41, December.
  20. Lee, Lung-fei, 1994. "Rational expectations in limited dependent variable models," Economics Letters, Elsevier, vol. 46(2), pages 97-104, October.
  21. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  22. Mishkin, Frederic S., 1990. "What does the term structure tell us about future inflation?," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 77-95, January.
  23. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  24. Pasaran, M.H. & Pasaran, B., 1989. "A Simulation Approach To The Problem Of Computing Cox'S Statistic For Testing Non-Nested Models," Papers 7, California Los Angeles - Applied Econometrics.
  25. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July.
  26. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  27. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
  28. Donald, Stephen G. & Maddala, G. S., 1992. "A note on the estimation of limited dependent variable models under rational expectations," Economics Letters, Elsevier, vol. 38(1), pages 17-23, January.
  29. Hamilton, James D., 1988. "Rational-expectations econometric analysis of changes in regime : An investigation of the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 385-423.
  30. Robert Amano & Richard Black & Marcel Kasumovich, 1997. "A Band-Aid Solution to Inflation Targeting," Staff Working Papers 97-11, Bank of Canada.
  31. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
  32. Kajal Lahiri, 2005. "Analysis of Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1093-1095.
  33. Osiewalski, J. & Koop, G. & Steel, M.F.J., 1997. "A Stochastic Frontier Analysis of Output Level and Growth in Poland and Western Economies," Discussion Paper 1997-85, Tilburg University, Center for Economic Research.
  34. M. Hashem Pesaran & Hossein Samiei, 1991. "Estimating Limited-Dependent Rational Expectations Models: With an Application to Exchange Rate Determination in a Target Zone," UCLA Economics Working Papers 612, UCLA Department of Economics.
  35. Chanda, Anup & Maddala, G. S., 1983. "Methods of estimation for models of markets with bounded price variation under rational expectations," Economics Letters, Elsevier, vol. 13(2-3), pages 181-184.
  36. Kiefer, Nicholas M, 1978. "Discrete Parameter Variation: Efficient Estimation of a Switching Regression Model," Econometrica, Econometric Society, vol. 46(2), pages 427-34, March.
  37. Laroque, Guy & Salanie, B, 1993. "Simulation-Based Estimation of Models with Lagged Latent Variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S119-33, Suppl. De.
  38. Kees G. Koedijk & Philip A. Stork & Casper G. De Vries, 1998. "An EMS target zone model in discrete time," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 31-48.
  39. Hashem Pesaran, M. & Ruge-Murcia, Francisco J., 1996. "Limited-dependent rational expectations models with stochastic thresholds," Economics Letters, Elsevier, vol. 51(3), pages 267-276, June.
  40. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-20, December.
  41. Ruge-Murcia, Francisco J, 1995. "Credibility and Changes in Policy Regime," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 176-208, February.
  42. Maddala, G.S., 1986. "Disequilibrium, self-selection, and switching models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 28, pages 1633-1688 Elsevier.
  43. M. Hashem Pesaran & Francisco J. Ruge-Murcia, 1996. "Limited-dependent rational expectations models with jumps," Discussion Paper / Institute for Empirical Macroeconomics 111, Federal Reserve Bank of Minneapolis.
  44. Townsend, Robert M, 1983. "Forecasting the Forecasts of Others," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 546-88, August.
  45. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
  46. Shonkwiler, J S & Maddala, G S, 1985. "Modeling Expectations of Bounded Prices: An Application to the Market for Corn," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 697-702, November.
  47. Gourieroux, C. & Monfort, A. & Trognon, A., 1985. "A General Approach to Serial Correlation," Econometric Theory, Cambridge University Press, vol. 1(03), pages 315-340, December.
  48. Lee, Lung-Fei & Porter, Robert H, 1984. "Switching Regression Models with Imperfect Sample Separation Information-With an Application on Cartel Stability," Econometrica, Econometric Society, vol. 52(2), pages 391-418, March.
  49. Nelson, Forrest D., 1977. "Censored regression models with unobserved, stochastic censoring thresholds," Journal of Econometrics, Elsevier, vol. 6(3), pages 309-327, November.
  50. Gourieroux Christian & Monfort Alain & Trognon A, 1984. "General approach of serial correlation (a)," CEPREMAP Working Papers (Couverture Orange) 8424, CEPREMAP.
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