EconPapers    
Economics at your fingertips  
 

Do bond markets find inflation targets credible? Evidence from five inflation-targeting countries

Young Min Kim, Kyu Ho Kang and Kook Ka

International Review of Economics & Finance, 2020, vol. 67, issue C, 66-84

Abstract: This study quantifies the inflation-targeting credibility in expectation as perceived by bond markets, measured by the posterior probability of the expected inflation falling within the target range over time. To this end, we derive an analytical inflation-expectation expression from a macro-finance arbitrage-free affine term-structure model. We then simulate its posterior distributions to account for the parameter and yield curve factor uncertainties. According to our empirical results for five inflation-targeting countries that have announced target ranges since the 1990s, the credibility in expectation varies strongly over time and reveals substantial cross-country variation. Further, the inflation risk premium tends to be small when the credibility level is high. (JEL classification: E52, G12, C58, E43)

Keywords: Macro-finance affine term-structure model; Parameter uncertainty; Inflation risk premium; Bayesian MCMC algorithm (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056019300103
Full text for ScienceDirect subscribers only

Related works:
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:eee:reveco:v:67:y:2020:i:c:p:66-84

DOI: 10.1016/j.iref.2019.12.007

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-07-01
Handle: RePEc:eee:reveco:v:67:y:2020:i:c:p:66-84