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What do the shadow rates tell us about future inflation?

Annika Kuusela () and Jari Hännikäinen

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates whether shadow interest rates contain predictive power for U.S. inflation in a data-rich environment. We find that shadow rates are useful leading indicators of inflation. Shadow rates contain substantial in-sample and out-of-sample predictive power for inflation in both the zero lower bound (ZLB) and non-ZLB periods. We find that the shadow rate suggested by Wu and Xia (2016) contains more information about future inflation than the shadow rate suggested by Krippner (2015b).

Keywords: shadow interest rates; zero lower bound; unconventional monetary policy; inflation forecasting; data-rich environment; factor models (search for similar items in EconPapers)
JEL-codes: C38 C53 E37 E43 E44 E58 (search for similar items in EconPapers)
Date: 2017-08-01
New Economics Papers: this item is included in nep-for, nep-mac and nep-mon
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