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Working Paper
The term structure of inflation compensation in the nominal yield curve
We propose a DSGE model with regime switching in the central bank?s inflation target to explain inflation compensation in the UK. Taking advantage of the well-documented change in UK monetary policy to adopt inflation targeting, we estimate our model using nominal and inflation-linked Treasury bond data from the UK from 1985 to 2007. We find that this model can account for the term structure of inflation compensation in the nominal yield curve by generating regime-dependent conditional expectations of future inflation.
Journal Article
Interest Rate Forecasts in Conventional and Unconventional Monetary Policy Periods
Monetary policy has been conducted with a different set of tools since the fi nancial crisis, and we investigate whether the change has affected the accuracy of professionals? interest-rate forecasts. We analyze the accuracy of federal funds rate and nominal Treasury yield forecasts in the periods before and after the introduction of new policy tools and find that,in general, forecast accuracy improved in the latter policy period.
Working Paper
Forecasts from Reduced-form Models under the Zero-Lower-Bound Constraint
In this paper, I consider forecasting from a reduced-form VAR under the zero lower bound (ZLB) for the short-term nominal interest rate. I develop a method that a) computes the exact moments for the first n + 1 periods when n previous periods are tracked and b) approximates moments for the periods beyond n + 1 period using techniques for truncated normal distributions and approximations a la Kim (1994). I show that the algorithm produces satisfactory results for VAR systems with moderate to high persistence even when only one previous period is tracked. For very persistent VAR systems, ...
Journal Article
Simple ways to forecast inflation: what works best?
There are many ways to forecast the future rate of inflation, ranging from sophisticated statistical models involving hundreds of variables to hunches based on past experience. We generate a number of forecasts using a simple statistical model and an even simpler estimating rule, adding in various measures thought to be helpful in predicting the course of inflation. Then we compare their forecast accuracy. We find that no single specification outperforms all others over all time periods. For example, the median and 16 percent trimmed-mean measures outperform all other specifications during ...
Journal Article
Do Oil Prices Predict Inflation?
Some analysts pay particular attention to oil prices, thinking they might give an advance signal of changes in inflation. However, using a variety of statistical tests, we find that adding oil prices does little to improve forecasts of CPI inflation. Our results suggest that higher oil prices today do not necessarily signal higher CPI inflation next year, although they do help to explain short-term movements in the CPI.
Journal Article
Unconventional Monetary Policy Measures and Inflation Expectations
After its conventional monetary policy tool, the federal funds rate, hit the zero lower bound, the Federal Reserve implemented a number of new tools, including large-scale asset purchases, to provide stimulus to the economy in the Great Recession and the subsequent slow recovery. Such measures caused an unprecedented increase in the Fed?s balance sheet and led some to fear that high inflation would soon follow. In this Economic Commentary, we argue that historical data for various measures of expected inflation did not provide any support for those fears. In addition, a look at the past six ...