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.
| Author of HS Reutlingen | Herzog, 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: | Book chapter |
| Language: | English |
| Publication year: | 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): |  Creative Commons - CC BY - Namensnennung 4.0 International |
