Do bond markets find inflation targets credible? Evidence from five inflation-targeting countries
- Authors
- Kim, Young Min; Kang, Kyu Ho; Ka, Kook
- Issue Date
- 5월-2020
- Publisher
- ELSEVIER
- Keywords
- Macro-finance affine term-structure model; Parameter uncertainty; Inflation risk premium; Bayesian MCMC algorithm
- Citation
- INTERNATIONAL REVIEW OF ECONOMICS & FINANCE, v.67, pp.66 - 84
- Indexed
- SSCI
SCOPUS
- Journal Title
- INTERNATIONAL REVIEW OF ECONOMICS & FINANCE
- Volume
- 67
- Start Page
- 66
- End Page
- 84
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/56070
- DOI
- 10.1016/j.iref.2019.12.007
- ISSN
- 1059-0560
- Abstract
- This study quantifies the inflation-targeting credibility in expectation as perceived by bond markets, measured by the posterior probability of the expected inflation falling within the target range over time. To this end, we derive an analytical inflation-expectation expression from a macrofinance arbitrage-free affine term-structure model. We then simulate its posterior distributions to account for the parameter and yield curve factor uncertainties. According to our empirical results for five inflation-targeting countries that have announced target ranges since the 1990s, the credibility in expectation varies strongly over time and reveals substantial cross-country variation. Further, the inflation risk premium tends to be small when the credibility level is high. (JEL classification: E52, G12, C58, E43)
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Collections - College of Political Science & Economics > Department of Economics > 1. Journal Articles
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