Extracting Market Inflation Expectations: A Semi-structural Macro-finance Term Structure Model

Tosapol Apaitan

No 4, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This paper estimates the term structure of inflation expectations using a semi-structural macro-finance term structure model based on new Keynesian macroeconomic framework and the arbitrage-free affine term structure model which defines bond prices as an affine function of state variables. Key economic variables and Thai government bond yield curve data are used to filter out for unobserved components. While letting the inflation target adapts over time, the results suggest that the inflation target has trended down under inflation targeting regime. The long-term inflation expectation is well anchored while the inflation risk premium has dropped substantially over the past five years. The real interest rate is considerably volatile and is a major contributor to movements in the 10-year government bond yield.

Keywords: Inflation expectations; Inflation risk premium; Affine term structure models (search for similar items in EconPapers)
JEL-codes: E43 E44 G12 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2015-09
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Citations: View citations in EconPapers (7)

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