The term structure of inflation compensation in the nominal yield curve

Mehmet Pasaogullari and Simeon Tsonevy

No 1133, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: We propose a DSGE model with regime switching in the central bank?s inflation target to explain inflation compensation in the UK. Taking advantage of the well-documented change in UK monetary policy to adopt inflation targeting, we estimate our model using nominal and inflation-linked Treasury bond data from the UK from 1985 to 2007. We find that this model can account for the term structure of inflation compensation in the nominal yield curve by generating regime-dependent conditional expectations of future inflation.

Keywords: Inflation targeting; Monetary policy - Great Britain (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1133

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