The Term Structure of Inflation Expectations

Mikhail Chernov and Philippe Mueller (philippe.mueller@wbs.ac.uk)

No 6809, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use evidence from the term structure of inflation expectations implicit in the nominal yields and survey forecasts of inflation to address the question of whether or not monetary policy is effective. We construct a model that accommodates forecasts over multiple horizons from multiple surveys and Treasury yields by allowing for differences between risk-neutral, subjective, and objective probability measures. We extract private sector expectations of inflation from this model and establish that they are driven by inflation, real activity and one latent factor, which is correlated with survey forecasts. We show that the interest rate responds to this "survey" factor. The inflation premium and out-of-sample estimates of the inflation long-run mean and persistence suggest that monetary policy became effective over time. As an implication, our model outperforms a standard macro-finance model in inflation and yield forecasting.

Keywords: inflation; Macro-finance term structure model; Monetary policy; Survey forecasts (search for similar items in EconPapers)
JEL-codes: C50 E52 G12 (search for similar items in EconPapers)
Date: 2008-04
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
https://cepr.org/publications/DP6809 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: The term structure of inflation expectations (2012)
Working Paper: The Term Structure of Inflation Expectations (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6809

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6809
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).