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Term structure and interest di ff erentials as predictors of future in fl ation changes and in fl ation di ff erentials
| Content Provider | Semantic Scholar |
|---|---|
| Author | Caporale, Guglielmo Maria Pittis, Nikitas |
| Copyright Year | 1998 |
| Abstract | The paper tests the unbiasedness of interest differentials and term structure as predictors of inflation differentials and inflation changes, respectively, using three-, sixand twelve-month maturities in eight major industrial countries over the period 1981—1992. The first hypothesis requires rational expectations (RE) and equality of ex-ante real interest rates, which in turn holds only in the presence of uncovered interest parity (UIP) and ex-ante purchasing power parity (PPP). The second is correct if, in addition to RE, the Fisher hypothesis and constancy of ex-ante real rates are satisfied. The empirical results lead to the rejection of both null hypotheses, although interest differentials and term structure do appear to be relatively useful for forecasting purposes. In particular, the interest differential model performs better than simple ARMA models at the shortest end of the maturity spectrum in out-of-sample forecasting. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.inspection.routledge.com/routledge/journal/af/pdfpapers/af080608.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
