The Term Structure of Interest Rates and Future Inflation

The information content of the term structure of interest rates is tested with respect to the development of future inflation in the Czech economy. Two types of models are tested. The first model examines the information contained in the term spread for future changes in inflation and is based on a...

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Bibliographic Details
Published inEastern European economics Vol. 37; no. 5; pp. 36 - 51
Main Author Kotlan, Viktor
Format Journal Article
LanguageEnglish
Published White Plains, N.Y Routledge 01.09.1999
M. E. Sharpe
Taylor & Francis Ltd
Subjects
Coefficients
Consumer Price Index
Economic expectations
Economic inflation
Economic theory
Future
Inflation
Inflation rates
Information
Interest rates
Monetary policy
Statistical analysis
Studies
Term spread
Working papers
Yield curves
Eastern Europe
Czech Republic
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ISSN0012-8775
1557-9298
DOI10.1080/00128775.1999.11648699

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Summary:The information content of the term structure of interest rates is tested with respect to the development of future inflation in the Czech economy. Two types of models are tested. The first model examines the information contained in the term spread for future changes in inflation and is based on a decomposition of nominal interest rates in line with the theory of Irving Fisher. The second model is based on the assumption that the term spread contains significant information about the stance of monetary policy, which then affects future inflation. The results compare well with previous research on the subject. Specifically, it is shown that the short end of the term structure contains virtually no information on the future development of inflation.
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ISSN:0012-8775
1557-9298
DOI:10.1080/00128775.1999.11648699