Is There Information About Future Inflation in the Term Structure? Empirical Results for Switzerland

Abstract

Using Swiss data from 1983 to 1996, we first use the approach developed by MISHKIN and are able to reproduce very similar results for Switzerland. However, these results are extremely unstable, once further variables are introduced in the equations. After checking for the order of integration we use cointegration methods and show that in nearly all cases the hypotheses behind the MISHKIN approach have to be rejected. Thus, this approach can hardly be used to predict future Swiss inflation. Moreover, the apparently successful application of this approach depends more on the negative correlation between short-term interest and long-term inflation rates than on a positive correlation between long-term interest and inflation rates.