Real world inflation modelling: Projecting CPI inflation for individual Euro-area economies
Document ID: 2009-1598 (previously 2009/16)
Published on: 13th November 2009
Author: Harry Hibbert & Steffen Sorensen
In the ESG inflation is modelled as the difference between the nominal and real yield curves adjusted for a view on term premia and technical convexity effects. Due to constraints on the availability of traded index-linked instruments, it is not possible to produce an acceptable calibration of yield curve models to imply inflation rates for every economy (or index) that clients might be interested in; this is the case for individual Euro-area economies.
This note summarises our latest research into modelling CPI inflation in Euro-area economies. A similar approach, although not explored here, could be used to model interstate inflation in the US.
