The statistical impact of inflation on interest rates |
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| Authors: | A. E. Monsalve-Cobis W. González-Manteiga W. Stute |
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| Affiliation: | 1. UICM-Departamento de Inv. Operaciones y Estadística, Decanato de Ciencias y Tecnología-UCLA-Nucleo Obelisco, Barquisimeto, Venezuela;2. Departamento de Estadistica e I.O., Facultad de Matematicas, Universidad de Santiago de Compostela, Santiago de Compostela, Spain;3. Mathematical Institute, University of Giessen, Giessen, Germany |
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| Abstract: | Understanding the behavior of interest rates is of central importance in finance. This is due to the fact that interest and forward rates serve as underlyings for many fixed income products. Furthermore, interest rate-based quantities may be used as numeraires when it comes to computing present values of future payoffs. An important macroeconomic factor which is likely to trigger interest rates is inflation. In this paper we extend a well-known continuous time interest rate model by incorporating inflation. Finally, we apply a statistical test to real data to explore the goodness-of-fit of the inflation-based model. |
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| Keywords: | Interest rate inflation Ornstein–Uhlenbeck process model fitting |
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