The coefficients of real M2, the real stock price and the euro interest rate are significant at the 1%, and the coefficient of the
expected inflation rate is significant at the 10% level.
One is the "time series" way--how a specific interest or
expected inflation rate varies over time.
One can immediately get an expression of the reaction function of the authorities when the price level is smaller than or equal to the
expected inflation rate by setting [delta] = 0 in Equation 5a.
If the public comes to believe that the central bank will want to use surprise inflation to reduce unemployment, then the public's
expected inflation rate will rise, shifting out the short-run Phillips Curve.
Real output is expected to have a positive relationship with real M2 and real government spending and a negative relationship with real government tax revenues and the
expected inflation rate.
Although the real interest rate and
expected inflation rate constructed using averages from commodity futures data are highly volatile, limited information estimates such as the median change can substantially reduce the noise in such measures.
The variable er sr is the nominal average interest rate yield on 12 month government bills (expressed as a percent per annum) in each quarter minus the
expected inflation rate (P) in that quarter.
Hence, the New Zealand
expected inflation rate is denoted by [pi](; z).
Moreover, the effectiveness of monetary policy and efficiency in banking sector has direct beating on the long-run relationship between nominal interest rate and
expected inflation rate.
18) Given these assumptions, the survey data can be used to calculate the
expected inflation rate, [[Pi].
The
expected inflation rate, which has both a direct as well as an indirect effect through the ex ante real rate, is calculated from the expected value of the ARMA (1,1) model of the inflation rate.
1 per cent, compared with an
expected inflation rate of 2.
