Log in
Lost password
Become a member for free
Sign up
Sign up
Dynamic quotes 

4-Traders Homepage  >  News


Latest NewsCompaniesMarketsEconomy & ForexCommoditiesHot NewsMost Read NewsRecomm.Business LeadersVideosCalendar 

Bank of Japan : (Research Paper) On the Reliability of Japanese Inflation Expectations Using Purchasing Power Parity

09/19/2013 | 10:30pm US/Eastern

September 20, 2013
Koichiro Kamada*
Jouchi Nakajima**


This paper shows how purchasing power parity (PPP) can be used to construct a measure for inflation expectations and discusses the properties of this measure from both a theoretical and an empirical perspective. Under the PPP hypothesis, inflation expectations in one country are equal to inflation expectations in another country plus the expected depreciation rate of the nominal exchange rate. Exploiting this formula, we calculate Japanese inflation expectations from the break-even inflation rates (BEI) and FX forward spreads for five countries (United States, United Kingdom, Australia, Canada, and Sweden). The resulting PPP-based measure of inflation expectations follows a trend that largely coincides with long-run developments in the Japanese BEI. However, we find that both levels of and variations in the new measure differ across the reference countries, and that a recent gap between the new measure and the Japanese BEI is not negligible from a short-run perspective. Consequently, there remain several issues that need to be addressed to assess the usefulness of this new formula.

BEI; Foreign exchange forward spread; Inflation expectations; Inflation-indexed bonds; PPP

We are grateful for helpful discussions with and comments from Tomoyoshi Yabu, seminar participants at Hitotsubashi University, and the staff of the Bank of Japan. The views expressed herein are those of the authors alone and do not necessarily reflect those of the Bank of Japan.

* Monetary Affairs Department
E-mail : kouichirou.kamada@boj.or.jp
** Monetary Affairs Department
E-mail : jouchi.nakajima@boj.or.jp

Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (post.prd8@boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.

distributed by
React to this article
Latest news
Date Title
08:19a NORD POOL ASA : no 84/15 Monthly Market Report September
08:19a IMPALA PLATINUM : Implats - results of general meeting
08:19a WTO WORLD TRADE ORGANIZATION : Trade Policy Review: Cabo Verde
08:19a LEIDOS : Celebrates 40 years in oak ridge
08:19a SINN FÉIN : Leaked CETA documents reinforces TTIP concerns - Carthy
08:19a GVC : Form 8.5 (EPT/RI) GVC Holdings Plc
08:19a AIR FRANCE KLM : The Air France protesters were desperate, frightened people, not a violent mob
08:19a RESEARCH AND MARKETS : 2016 Emerging Hematology and Flow Cytometry Tests, and Strategic Profiles of Leading Reagent and Instrument Suppliers
08:18a RESEARCH AND MARKETS : 2015 World Molecular Diagnostic Analyzers and Reagents Market: Infectious Diseases, Genetic Diseases, Cancer, Forensic and Paternity Testing
08:17a APARTMENT INVESTMENT AND MANAGEMENT : & MANAGEMENT CO : Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)
Latest news
Hot News 
UK MAIL : Delivers Higher First Half Revenue, Trading In Line
AQUARIUS PLATINUM UK : Surges As It Recommends Sibanye Takeover Bid
SPARK VENTURES : Net Asset Value Update
DRIVER : Pre Close Trading Update
Most Read News
10/05DJAustralia Trade Deficit Widens In August
10/05 PSA PHILIPPINE STATISTICS AUTHORITY : Producer Price Survey : August 2015
10/05 British Airways' last flight out of Uganda
10/05 UNIVERSITY OF ADELAIDE : Tequila plant shows promise for biofuel
10/05 Rocky Mountain Institute Opens Application for the 2016 e-Lab Accelerator
Most recommended articles
08:16aDJActivist Investor ValueAct Turns Up Pressure on Baker Hughes
08:16aDJYemen Rocket Attack Kills At Least 15
08:15aDJS&P 500, Nasdaq Futures -- Technical Analysis
08:14aDJMARKET SNAPSHOT : U.S. Stock Futures Retreat After Rally, As Earnings Loom
08:05aDJSkyworks to Buy PMC-Sierra