Member access

4-Traders Homepage  >  News

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
Recommend:
0

September 20, 2013
Koichiro Kamada*
Jouchi Nakajima**

Abstract

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.

Keywords
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
Notice

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
Recommend :
0
React to this article
Latest news
Date Title
<1m ago SAN JOSE MERCURY-NEWS, CONTRA COSTA TIMES, OAKLAND TRIBUNE ENDORSE YES ON PROP 45, SAY : Ballot Initiative Would Bring Prop 103 Savings To Health Insurance, according to Consumer Watchdog Campaign
1m ago FibroGen Announces One-Year Data Supporting the Safety and Efficacy Profile of FG-3019 in Patients with Idiopathic Pulmonary Fibrosis
4m ago PETROLEUM & RESOURCES : Nigerian oil workers call off strike
5m ago BAHRAIN MARKET REPORT : Steady recovery
5m ago UNION PROPERTIES PJSC : launches $485mn of new projects
17m ago ICAD : Old Students shock champ ICAD
17m ago RENAULT : A racing car built for performance
18m ago BAYERISCHE MOTOREN WERKE : Revolutionary BMW i8 arrives in Saudi Arabia
18m ago TOYOTA MOTOR : A story driven by innovation
18m ago FIAT : Maserati turns 100
Latest news
Advertisement
Hot News 
BANCO ESPIRITO SANTO : Swiss begin bankruptcy proceedings against Espirito Santo private bank
DIXONS CARPHONE : Phones 4U says Vodafone will take 140 of its stores
EREDENE CAPITAL : Sells Aboyne To Brick Eagle For GBP3 Million
ITT EDUCATIONAL SERVICES : Entry into a Material Definitive Agreement, Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing, Change in Directors or Principal Officers, Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)
SINGULUS TECHNOLOGIES : Sees Weak 2014
Most Read News
1d ago ORACLE : When music stops for Oracle CEO dance, Catz may grab Ellison's chair - Analysts
1d ago DTF TAX FREE INCOME : Duff & Phelps Closed-End Funds Announce Dividends
1d ago BANK OF AMERICA : Merrill Lynch fires brokers for promoting outside hedge fund - source
1d ago BOEING : U.N. aviation body to mull space safety as space taxis ready for flight
7h ago AIR FRANCE KLM : pilots extend strike until Sept. 26
Most recommended articles
2h ago ESM's chief says EU, IMF in no mood for a Greek debt haircut
2h agoDJG-20 Plans to Raise Global Growth by 2% in Next Five Years
6h ago EU mulls tapping unused rescue funds to boost investment - paper
6h agoDJNew Zealand Prime Minister John Key Wins Third Term -- Update
7h ago Canada Fin Min says G20 near growth target, wants more from Europe
Dynamic quotes  
ON
| OFF