Real world inflation modelling Real average earnings model: Long-term calibration
Document ID: 2010-1647
Published on: 15th January 2010
Author: Harry Hibbert & Steffen Sorensen
Specific inflation rates are a concern for any institution with liabilities linked to prices in a particular region or sector. Aggregated price indices can only ever proxy the inflation rates relevant to individual firms, which means that risk management can be improved by calibrating models to inflation indices that better represent the inflation rate relevant to liabilities faced by a firm. This note presents calibration parameters and simulation targets for modelling wage inflation rates in multiple economies. Note that these models are not currently part of our standard ESG calibration, but can be set up on a bespoke basis.
