Inflation risk premia in the term structure of interest rates

Peter Hoerdahl and Oreste Tristani
Authors registered in the RePEc Author Service: Peter Hördahl

No 228, BIS Working Papers from Bank for International Settlements

Abstract: This paper estimates the size and dynamics of inflation risk premia in the euro area, based on a joint model of macroeconomic and term structure dynamics. Information from both nominal and index-linked yields is used in the empirical analysis. Our results indicate that term premia in the euro area yield curve reflect predominantly real risks, i.e. risks which affect the returns on both nominal and index-linked bonds. On average, inflation risk premia were negligible during the EMU period but occasionally subject to statistically signifcant fluctuations in 2004-2006. Movements in the raw break-even rate appear to have mostly reflected such variations in inflation risk premia, while long-term inflation expectations have remained remarkably anchored from 1999 to date.

Keywords: Term structure of interest rates; inflation risk premia; central bank credibility (search for similar items in EconPapers)
Pages: 50 pages
Date: 2007-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Related works:
Journal Article: INFLATION RISK PREMIA IN THE TERM STRUCTURE OF INTEREST RATES (2012)
Journal Article: The inflation risk premium in the term structure of interest rates (2008)
Working Paper: Inflation risk premia in the term structure of interest rates (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:228

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