The Extraction Of Inflation Expectation From Financial Market

There are some traditional methods to obtain accurate and timely inflation expectation information.These methods include the inference method based on the macroscopic indicators and historical inflation indices and survey method based on market expectations survey data.However,methods above have their disadvantages in some extent.In order to overcome the delay and authenticity problems of the traditional method in obtaining inflation expectations,this paper will focus on financial markets.Financial markets are places where people trade with each other according to their current information and expectations of future market.Prices in financial markets have advantages of forward-looking and authenticity.Based on these feature,this paper attempts to extract future inflation information from the price information in financial markets in order to provide more significant decision-making reference for policymakers and financial market investors.This paper takes the bond market and commodity market as the research context.And it can be divided into two parts.The first part takes the Treasury bonds as the research object and establishes the bond market model to extract inflation information.The second part adds the commodities futures index to establish a joint model of bond markets and commodity markets.The bond-commodity market model is used to extract inflation information from the perspective of both two markets.The models'estimations are mainly based on the method of Kalman filter and MLE(maximum likelihood estimator).This paper selects the Treasury yield curve,the CPI and the Nanhua commodity futures index as observation variables of nominal interest rates,inflation and commodity futures index,respectively.In the bond market model,we use Gaussian affine factors form to model Treasury asset prices and then build a three-factor dynamic interest rate term structure model.By further derivation,we can decompose the nominal interest rate and finally get the term structures of the real interest rate,the inflation expectations without risk compensation and inflation risk compensation in physical measure.Similarly,in the bond-commodity market model,we have modeled the factor form of Treasury bonds and commodity index separately.At last,we establish a five-factor interest rate term structure model to link the two markets' data.By derivation,we can also decompose the nominal interest rate and finally get the term structures of the real interest rate,the inflation expectations without risk compensation and inflation risk compensation in physical measure.In empirical analysis,we find that inflation risk compensation in China is positive recently.This reveals that people indeed request compensation for inflation risk when future inflation is unsure.Compared with the bond market model,the bond-commodity market model in this paper deserves more attention.The analysis framework can jointly exact inflation information from two or more markets.It provides a reference for future work in jointly get inflation information by using financial market data.