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Extracting Market Inflation Expectations: A Semi-structural Macro-finance Term Structure Model

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  • Tosapol Apaitan

Abstract

This paper estimates the term structure of inflation expectations using a semi-structural macro-finance term structure model based on new Keynesian macroeconomic framework and the arbitrage-free affine term structure model which defines bond prices as an affine function of state variables. Key economic variables and Thai government bond yield curve data are used to filter out for unobserved components. While letting the inflation target adapts over time, the results suggest that the inflation target has trended down under inflation targeting regime. The long-term inflation expectation is well anchored while the inflation risk premium has dropped substantially over the past five years. The real interest rate is considerably volatile and is a major contributor to movements in the 10-year government bond yield.

Suggested Citation

  • Tosapol Apaitan, 2015. "Extracting Market Inflation Expectations: A Semi-structural Macro-finance Term Structure Model," PIER Discussion Papers 4, Puey Ungphakorn Institute for Economic Research.
    • Handle: RePEc:pui:dpaper:4
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    Cited by:

    1. Pongsak Luangaram & Yuthana Sethapramote, 2016. "Central Bank Communication and Monetary Policy Effectiveness: Evidence from Thailand," PIER Discussion Papers 20, Puey Ungphakorn Institute for Economic Research.
    2. Manopimoke, Pym & Limjaroenrat, Vorada, 2017. "Trend inflation estimates for Thailand from disaggregated data," Economic Modelling, Elsevier, vol. 65(C), pages 75-94.
    3. Pongsak Luangaram & Yuthana Sethapramote, 2016. "Central Bank Communication and Monetary Policy Effectiveness: Evidence from Thailand," PIER Discussion Papers 20., Puey Ungphakorn Institute for Economic Research, revised Feb 2016.

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    More about this item

    Keywords

    Inflation expectations; Inflation risk premium; Affine term structure models;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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