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Modeling inflation dynamics with fractional Brownian motions and Lévy processes

  • The article studies a novel approach of inflation modeling in economics. We utilize a stochastic differential equation (SDE) of the form dXt=aXtdt+bXtdBtH, where dBtH is a fractional Brownian motion in order to model inflationary dynamics. Standard economic models do not capture the stochastic nature of inflation in the Eurozone. Thus, we develop a new stochastic approach and take into consideration fractional Brownian motions as well as Lévy processes. The benefits of those stochastic processes are the modeling of interdependence and jumps, which is equally confirmed by empirical inflation data. The article defines and introduces the rules for stochastic and fractional processes and elucidates the stochastic simulation output.

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Metadaten
Author of HS ReutlingenHerzog, Bodo
URN:urn:nbn:de:bsz:rt2-opus4-28761
DOI:https://doi.org/10.5772/intechopen.92292
Erschienen in:Linear and non-linear financial econometrics - theory and practice
Publisher:IntechOpen
Place of publication:London
Editor:Mehmet Kenan Terzioğlu, Gordana Djurovic
Document Type:Part of a Book
Language:English
Year of Publication:2020
Tag:Lévy process; dynamics; fractional Brownian motion; inflation; jump-diffusion; modeling; stochastic differential equation
Page Number:12
First Page:1
Last Page:12
DDC classes:330 Wirtschaft
Open Access?:Ja
Licence (German):License Logo  Creative Commons - CC BY - Namensnennung 4.0 International