Term premiums matter for inflation – BoJ paper
Term premiums domestically and abroad appear to affect inflation via exchange rate channel, authors find
Term premiums in Japan and the US matter for Japanese inflation, according to a working paper published on June 9 by the Bank of Japan (BoJ).
Authors Mitsuru Katagiri and Koji Takahashi study whether term premiums matter for inflation via an exchange rate effect, noting there is generally an observed relationship between long-term interest rate differentials and the exchange rate, which is often explained by the theory of uncovered interest parity.
On the basis of a small open-economy model
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