Estimating inflation compensation for Turkey using yield curves |
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| Institution: | 1. Department of Economics, Korea University, Seoul, Republic of Korea;2. Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea;1. Department of International Commerce, Keimyung University, 1095 Dalgubeol-daero, Dalseo-gu, Daegu 42601, South Korea;2. Department of Economics and Finance, Keimyung University, 1095 Dalgubeol-daero, Dalseo-gu, Daegu 42601, South Korea |
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| Abstract: | Inflation compensation derived from nominal and real bond yields contains market based, real time information regarding the inflation expectations and the pricing of inflation risks. In this study, we calculate inflation compensation for Turkey by using nominal and real yield curves. The findings of event study analysis on inflation compensation indicate that changes in the term structure of inflation compensation contain information regarding the credibility of monetary authority. Moreover, we find that, at daily frequency, liquidity conditions have no significant effect on inflation compensation and hence the effects of events such as monetary policy decisions and inflation surprises on inflation compensation can be attributed mainly to changes in inflation expectations and pricing of inflation uncertainty. |
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