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Information Content of Inflation Expectations: A Copula-Based Model

Author

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  • Ardakani Omid M.

    (Associate Professor, Department of Economics, 7604 Parker College of Business, Georgia Southern University , Savannah, GA, 31405, USA)

Abstract

This paper introduces a holistic framework that integrates copula modeling and information-theoretic measures to examine the information content of inflation expectations. Copulas are used to capture the dynamic dependence between inflation and expectations, accounting for extreme events and tail dependence. Information-theoretic measures are employed to quantify the information that expectations provide about inflation. Theoretical results establish a link between copula entropy and mutual information, propose a lower bound for copula entropy, and provide a practical tool for central banks to anchor expectations to achieve inflation targets. Empirical findings reveal higher uncertainty in the tails of the joint distribution and underscore the meaningful information carried by expected inflation for forecasting inflation, particularly with shorter-term expectations.

Suggested Citation

  • Ardakani Omid M., 2025. "Information Content of Inflation Expectations: A Copula-Based Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 29(1), pages 71-93.
    • Handle: RePEc:bpj:sndecm:v:29:y:2025:i:1:p:71-93:n:1006
    DOI: 10.1515/snde-2023-0075
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    More about this item

    Keywords

    copula modeling; dependence structure; entropy; Fisher information; inflation expectations; mutual information;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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