scholarly journals Term Structure, Inflation, and Real Activity

2009 ◽  
Vol 44 (4) ◽  
pp. 987-1011 ◽  
Author(s):  
Andrea Berardi
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Structural Model ◽  
Output Growth ◽  
Cross Sectional ◽  
Real Activity ◽  
Conditional Mean ◽  
Inflation Rates ◽  
Out Of Sample ◽  
Inflation Risk Premia

AbstractThis paper estimates an internally consistent structural model that imposes cross-sectional restrictions on the dynamics of the term structure of interest rates, inflation, and output growth. Distinct from previous term structure settings, this model introduces both time-varying central tendencies and a stochastic conditional mean of output growth. The estimation of the model, which is based on U.S. data over a 1960 to 2005 sample period, provides reliable estimates for the implicit term structures of real interest rates, expected inflation rates, and inflation risk premia, as well as for expectations of macroeconomic variables. The model has better out-of-sample forecasting properties than a number of alternative models, and it contradicts the puzzling evidence that during the “Great Moderation” in inflation subsequent to the mid-1980s, the forecasting ability of structural models deteriorated with respect to atheoretic statistical models.

scholarly journals STOCK RETURNS, TERM STRUCTURE, INFLATION, AND REAL ACTIVITY: AN INTERNATIONAL PERSPECTIVE

2000 ◽  
Vol 4 (3) ◽  
pp. 343-372 ◽  
Author(s):  
Fabio Canova ◽  
Gianni De Nicoló
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Term Structure ◽  
Asset Returns ◽  
International Perspective ◽  
Policy Implications ◽  
Real Activity ◽  
Inflation Rates ◽  
Points Of View ◽  
The U.S

This paper analyzes the empirical interdependecies among asset returns, real activity, and inflation from multicountry and international points of view. We find that innovations in nominal stock returns are not significantly related to inflation or real activity, that the U.S. term structure of interest rates predicts both domestic and foreign inflation rates and domestic future real activity, and that innovations in inflation do not significantly affect real activity. An interpretation of the dynamics and some policy implications of the results are provided.

Monetary-Policy Rule as a Bridge: Predicting Inflation without Predictive Regressions

2018 ◽  
Vol 53 (6) ◽  
pp. 2559-2586 ◽  
Author(s):  
Jian Hua ◽  
Liuren Wu
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Historical Analysis ◽  
Policy Rule ◽  
Estimation Errors ◽  
Predictive Regressions ◽  
Inflation Rates ◽  
Monetary Policy Rule ◽  
Out Of Sample

A major issue with predicting inflation rates using predictive regressions is that estimation errors can overwhelm the information content. This article proposes a new approach that uses a monetary-policy rule as a bridge between inflation rates and short-term interest rates and relies on the forward-interest-rate curve to predict future interest-rate movements. The 2-step procedure estimates the predictive relation not through a predictive regression but far more accurately through the contemporaneous monetary-policy linkage. Historical analysis shows that the approach outperforms random walk out of sample by 30%–50% over horizons from 1 to 5 years.

scholarly journals Revisiting the Dynamic Linkages of Treasury Bond Yields for the BRICS: A Forecasting Analysis

Forecasting ◽  
2020 ◽  
Vol 2 (2) ◽  
pp. 102-129
Author(s):  
Stelios Bekiros ◽  
Christos Avdoulas
Keyword(s):  
Interest Rates ◽  
Error Correction ◽  
Term Structure ◽  
Parameter Instability ◽  
Vector Error Correction ◽  
Brics Countries ◽  
Vector Error ◽  
Long Run ◽  
Out Of Sample ◽  
Dynamic Linkages

We examined the dynamic linkages among money market interest rates in the so-called “BRICS” countries (Brazil, Russia, India, China, and South Africa) by using weekly data of the overnight, one-, three-, and six- months, as well as of one year, Treasury bills rates covering the period from January 2005 to August 2019. A long-run relationship among interest rates was established by employing the Vector Error Correction modeling (VECM), which revealed the validation of the Expectation Hypothesis Theory (EH) of the term structure of interest rates, taking into account long-run deviations from equilibrium and inherent nonlinearities. We unveiled short-run dynamic adjustments for the term structure of the BRICS, subject to regime switches. We then used Markov Switching Vector Error Correction models (MS-VECM) to forecast them dynamically during an out-of-sample period of May 2016 through August 2019. The MSIH-VECM forecasts were found to be superior to the VECM approaches. The novelty of our paper is mainly due to the exploration of the possibility of parameter instability as a crucial factor, which might explain the rejection of the restricted version of the cointegration space, and on the dynamic out-of-sample forecasts of the term structure over a more recent time span in order to assess further the usefulness of our nonlinear MS-VECM characterization of the term structure, capturing the effects of the global and domestic financial crisis.

scholarly journals The Dynamics of Inflation Rates in a Consumer Driven Economy

2020 ◽  
Vol 03 (12) ◽  
Author(s):  
Musa Umar ◽  
Keyword(s):  
Interest Rates ◽  
Money Supply ◽  
Relative Effectiveness ◽  
Growth Management ◽  
Output Growth ◽  
Fiscal Policies ◽  
Correction Model ◽  
Inflation Rates ◽  
Sustainable Economic Growth ◽  
Model Approach

The research was motivated by the conviction that inflation entails sizeable economic and social cost, and that for achieving a sustainable economic growth, management of inflation is a prerequisites. Co-integration and autoregressive error correction model approach was used to investigate the effect of money supply, fiscal deficits and export on the relative effectiveness of fiscal policy in Nigerian consumer driven economy. The study reveals there is a significant causal relationship between gross domestic product (GDP) and the variables considered in the research. The Granger causality outcomes demonstrate that t here is no causality between money supply and inflation in Nigeria within the study period, meaning that there are different economic conditions that are key determinant of inflation in Nigeria. We conclude that fiscal policies have a significant influence on the output growth of the economy, and recommend that the Central Bank of Nigeria should guarantee an exchange rate stability and sound monetary surveillance, look inward for ways to regulate the interest rates that will encourage private and foreign investors to transform our consumer driven economy.

scholarly journals A Structural Measure of the Shadow Federal Funds Rate

2021 ◽  
Vol 2021 (064) ◽  
pp. 1-40
Author(s):  
Callum Jones ◽  
◽  
Mariano Kulish ◽  
James Morley ◽  
◽  
...  
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Interest Rates ◽  
Term Structure ◽  
Structural Model ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Structural Measure

We propose a shadow policy interest rate based on an estimated structural model that accounts for the zero lower bound. The lower bound constraint, if expected to bind, is contractionary and increases the shadow rate compared to an unconstrained systematic policy response. By contrast, forward guidance and other unconventional policies that extend the expected duration of zero-interest-rate policy are expansionary and decrease the shadow rate. By quantifying these distinct effects, our structural shadow federal funds rate better captures the stance of monetary policy given economic conditions than a shadow rate based only on the term structure of interest rates.

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