Measuring Expected Inflation and the Ex-Ante Real Interest Rate in the Euro Area Using Structural Vector Autoregressions

Jan Gottschalk

No 1067, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: In this paper, the structural vector autoregression methodology is used to decompose the euro area nominal short-term interest rate into an expected inflation and an ex-ante real interest rate component. The latter may be a useful indicator of the monetary policy stance of the ECB. To this end, a vector autoregression model comprised of the differenced interest rate series and the stationary component of the real interest rate is estimated and shocks to expected inflation and the ex-ante real rate are identified using the long-run restriction that only shocks to expected inflation have long-run effects on the nominal interest rate.

Keywords: Monetary policy stance; Inflation expectations; Structural vector autoregressive model (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1067

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