Economics, Econometrics and Finance
4 years ago

Inflation targeting boosts term structure's predictive power for future inflation.

MPRA Paper
Has inflation targeting increased predictive power of term structure about future inflation: evidence from an emerging market ?
Yazgan Ege, Hüseyin Kaya

Paper Summary

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The study looked at how the relationship between interest rates and future inflation changed in an emerging market after a new monetary policy was introduced. Before the new policy, interest rates didn't predict future inflation. But after the new policy, interest rates became a good indicator of future inflation. This shows that changes in monetary policy can affect how well interest rates predict inflation in the future.