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The term structure of inflation expectations
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Chernov, Mikhail and Mueller, Philippe (2012) The term structure of inflation expectations. Journal of Financial Economics, 106 (2). pp. 367-394. doi:10.1016/j.jfineco.2012.06.004 ISSN 0304-405X.
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Official URL: http://dx.doi.org/10.1016/j.jfineco.2012.06.004
Abstract
We use information in the term structure of survey-based forecasts of inflation to estimate a factor hidden in the nominal yield curve. We construct a model that accommodates forecasts over multiple horizons from multiple surveys and Treasury real and nominal yields by allowing for differences between risk-neutral, subjective, and objective probability measures. We establish that model-based inflation expectations are driven by inflation, output, and one latent factor. We find that this factor affects inflation expectations at all horizons but has almost no effect on the nominal yields; that is, the latent factor is hidden. We show that this hidden factor is not related to either current and past inflation or the standard set of macro variables studied in the literature. Consistent with the theoretical property of a hidden factor, our model outperforms a standard macro-finance model in its forecasting of inflation and yields.
Item Type: | Journal Article | ||||
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Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | Journal of Financial Economics | ||||
Publisher: | Elsevier Science BV | ||||
ISSN: | 0304-405X | ||||
Official Date: | 2012 | ||||
Dates: |
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Volume: | 106 | ||||
Number: | 2 | ||||
Page Range: | pp. 367-394 | ||||
DOI: | 10.1016/j.jfineco.2012.06.004 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Open Access (Creative Commons) |
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