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The statistical impact of inflation on interest rates

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  • A. E. Monsalve-Cobis
  • W. González-Manteiga
  • W. Stute

Abstract

Understanding the behavior of interest rates is of central importance in finance. This is due to the fact that interest and forward rates serve as underlyings for many fixed income products. Furthermore, interest rate-based quantities may be used as numeraires when it comes to computing present values of future payoffs. An important macroeconomic factor which is likely to trigger interest rates is inflation. In this paper we extend a well-known continuous time interest rate model by incorporating inflation. Finally, we apply a statistical test to real data to explore the goodness-of-fit of the inflation-based model.

Suggested Citation

  • A. E. Monsalve-Cobis & W. González-Manteiga & W. Stute, 2017. "The statistical impact of inflation on interest rates," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 46(14), pages 6754-6763, July.
    • Handle: RePEc:taf:lstaxx:v:46:y:2017:i:14:p:6754-6763
    DOI: 10.1080/03610926.2015.1130842
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