The term structure of inflation risk premia and macroeconomic dynamics

Peter Hördahl (), Oreste Tristani and David Vestin
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Peter Hördahl: European Central Bank

No 203, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: This paper estimates the size and dynamics of inflation risk premia in the euro area using information from nominal and index-linked yields. Our main result is that the inflation risk premium on long-term nominal yields is nonnegligible from an economic viewpoint. Break-even inflation rates — i.e. the difference between nominal and real yields with identical maturity — therefore represent a relatively crude approximation of inflation expectations. Break-even inflation rates are also found to contain useful information to forecast inflation and output growth, even when taking into account standard indicators such as the slope of the yield curve

Keywords: Term structure of interest rates; risk premia; policy rules (search for similar items in EconPapers)
JEL-codes: E43 E44 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:203

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