The Simplest Test of Inflation Credibility
1993 (English)Report (Other academic)
A simple test of inflation target credibility is constructed by subtracting the maximum and minimum inflation rates consistent with the inflation targets from the yields to maturity on nominal bonds. This results in a target-consistent range of real yields on nominal bonds. If expected yields, or market real interest rates on real bonds if such are available, fall outside the range of target-consistent real yields, credibility is rejected. Two concepts of credibility, called absolute credibility and credibility in expectation, are distinguished. The inflation targets of Canada, New Zealand and Sweden are examined with convenient diagrams over yields to maturity and forward interest rates.
Place, publisher, year, edition, pages
Stockholm: IIES , 1993. , 17 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 560
monetary policy, inflation expectations, term structure of interest rates
IdentifiersURN: urn:nbn:se:su:diva-41884OAI: oai:DiVA.org:su-41884DiVA: diva2:342781