Inflation risk premia in the term structure of interest rates

Peter Hördahl and Oreste Tristani

No 734, Working Paper Series from European Central Bank

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 pre-dominantly 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 significant 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. JEL Classification: E43, E44

Keywords: central bank credibility.; in; term structure of interest rates (search for similar items in EconPapers)
Date: 2007-02
Note: 14047
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp734.pdf (application/pdf)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007734

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().