Forecasting Inflation from the Term Structure

Kai Carstensen and J. Hawellek

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: In this paper the authors analyze the forecasting ability of the term structure with respect to future inflation in Germany. In contrast to previous studies, they find evidence in favor of a nonstationary term premium. Assuming that the nonstationary part of the term premium can be approximated by an observable factor, they derive testable restrictions which cannot be rejected for German data. In an out-of-sample forecasting experiment, the model out-performs rival models which assume a constant term premium. Nevertheless, the authors find that the forecasting ability of the term structure is limited while the real interest rate is revealed as a good predictor for future inflation rates.

Date: 2003
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Citations: View citations in EconPapers (8)

Published in Review of World Economics 2 139(2003): pp. 306-323

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Working Paper: Forecasting Inflation from the Term Structure (2003)
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