Taylor rule

Backcasting real interest rates and inflation expectations – combining market-based measures with historical data for related variables

Retrieved on: 
木曜日, 3月 30, 2023
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= Backcasting real rates and inflation expectations – combining market-based measures with historical data for related variables =

Key Points: 
  • = Backcasting real rates and inflation expectations – combining market-based measures with historical data for related variables =
    Published as part of the ECB Economic Bulletin, Issue 2/2023.
  • Markets for financial products linked to inflation in the euro area offer valuable insights into market participants’ expectations for inflation and real interest rates, but these financial instruments have only been available since the early 2000s.
  • The yields on inflation-linked bonds (ILBs) and the interest rates on inflation-linked swaps (ILSs) incorporate market participants’ expectations for inflation and real interest rates over periods from one to 30 years.
  • These longer time series are constructed by estimating the relationship between ILS rates or market-implied real rates and longer time series of statistical data for variables such as inflation or indicators of economic activity.
  • The starting point for the backcasting exercise is a set of 108 variables, dating back to at least 1992, that may provide information about inflation compensation and real rates.
  • The backcasted series indicate the broad contours of inflation compensation and real rates for various maturities over a period where real-time market-based measures were not yet available.
  • The shaded areas mark the period for which euro area ILS rates and real rates have been backcasted (January 1992 to March 2005).
  • Here too, shorter maturities are broadly in line with measures of inflation expectations obtained from survey data in combination with nominal yield data.
  • Notes: The shaded areas mark the sample for which euro area ILS rates and real rates have been backcasted (January 1992 to March 2005).
  • Notes: The shaded area marks the sample for which euro area ILS rates and real rates have been backcasted (January 1992 to March 2005).