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A Copula Approach to Backward-Looking Factors in Market Based Inflation Expectations

In: Contemporary Trends and Challenges in Finance

Author

Listed:
  • Piotr Płuciennik

    (Adam Mickiewicz University in Poznań)

  • Magdalena Szyszko

    (WSB University in Poznan)

Abstract

The paper presents an analysis of the dependences between inflation expectations extracted from inflation-linked swaps quoted for EUR and three other variables: exchange rate, oil prices and interbank rate. To determine the existence of the dependences, also for the outliners, the methodology based on the DCC-t-copula model is applied. Time span covers 2009–2015. Dynamic Kendall’s τ and tail dependence coefficients for 2Y expectations prove to be negligible and counterintuitive. The explanations of the results can be found in the swap market features (illiquidity and negative inflation risk premium for some time) and the measure of expectations applied (being just the approximation of the expectations, highly volatile for daily quotations).

Suggested Citation

  • Piotr Płuciennik & Magdalena Szyszko, 2017. "A Copula Approach to Backward-Looking Factors in Market Based Inflation Expectations," Springer Proceedings in Business and Economics, in: Krzysztof Jajuga & Lucjan T. Orlowski & Karsten Staehr (ed.), Contemporary Trends and Challenges in Finance, pages 69-77, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-54885-2_7
    DOI: 10.1007/978-3-319-54885-2_7
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