Inflation expectations and risk premia in emerging bond markets: Evidence from Mexico

Remy Beauregard, Jens H.E. Christensen, Eric Fischer and Simon Zhu

Journal of International Economics, 2024, vol. 151, issue C

Abstract: To study inflation expectations and associated risk premia in emerging bond markets, we provide estimates for Mexico based on an arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for their liquidity risk. Beyond documenting the existence of large and weakly correlated liquidity premia in nominal and real bond prices, our results indicate that long-term inflation expectations in Mexico are well anchored close to the Bank of Mexico’s inflation target. Furthermore, Mexican inflation risk premia are larger and more volatile than those in Canada and the United States.

Keywords: Term structure modeling; Liquidity risk; Financial market frictions; Central bank credibility (search for similar items in EconPapers)
JEL-codes: D84 E31 E43 E44 E47 E52 E58 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:151:y:2024:i:c:s0022199624000886

DOI: 10.1016/j.jinteco.2024.103961

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