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

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
React to this article
Latest news
Date Title
07:27p SYNAGEVA BIOPHARMA : reports 4Q loss
07:25p ASPEN AEROGELS : reports 4Q loss
07:24p Investors ask oil companies to disclose refineries' risks from climate change
07:24p ACADIA PHARMACEUTICALS : reports 4Q loss
07:24p HFF : posts 4Q profit
07:24p AMPCO PITTSBURGH : reports 4Q loss
07:24p HONDA MOTOR : Woman keeps score the old-fashioned way at Honda Classic
07:23p WEB : The Small Business Guide to Social Advertising
07:22p Storix® System Backup Administrator Announces Support for SUSE Linux Enterprise 12
07:21p BANK OF GEORGIA : "sakartvelos banki" extends loans, issued in dollars
Latest news
Advertisement
Hot News 
New Zealand Fund Files Debt Proceedings Against Novo Banco
SORIN : Cyberonics and Sorin Group to Merge, Creating a New Premier Global Medical Technology Company
ROBERT WALTERS : Profit Surges On Fee Income Growth Across Business
ACCESSO TECHNOLOGY : ShoWare Wins 11 New Contracts In Mexico, US And Canada
PGT : misses 4Q profit forecasts
Most Read News
06:04p Bank of America accounting chief, two directors to step down
06:00p DEUTSCHE TELEKOM : sees dividend growth in line with free cash flow
06:15p What is net neutrality? U.S. debates once again
06:31pDJSOUTHWESTERN ENERGY : to Cut Investment Spending
06:01p HELIX ENERGY SOLUTIONS : and BP Agree to Amend Multi-Year Q5000 Contract
Most recommended articles
02/20DJMarkets Hang on Greek Impasse
07:16pDJJapan Inflation Continues to Slow
07:13pDJGRAIN HIGHLIGHTS : Top Stories of the Day
07:12pDJPlan to Sell Argentine Debt Collapses -- Update
07:10p UK consumer confidence holds at high level in February - GfK
Dynamic quotes  
ON
| OFF