Estimating Inflation Expectations with a Limited Number of Inflation-Indexed Bonds

Richard Finlay and Sebastian Wende

International Journal of Central Banking, 2012, vol. 8, issue 2, 111-142

Abstract: We develop a novel technique to estimate inflation expectations and inflation risk premia when only a limited number of inflation-indexed bonds are available. The method involves pricing coupon-bearing inflation-indexed bonds directly in terms of an affine term structure model, and avoids the usual requirement of estimating zero-coupon real yield curves. We estimate the model using a non-linear Kalman filter and apply it to Australia. The results suggest that long-term inflation expectations in Australia are well anchored within the Reserve Bank of Australia’s inflation target range of 2 to 3 percent, and that inflation expectations are less volatile than inflation risk premia.

JEL-codes: E31 E43 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Estimating Inflation Expectations with a Limited Number of Inflation-indexed Bonds (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2012:q:2:a:4

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