Inflation expectations and risk premiums in an arbitrage-free model of nominal and real bond yields

Jens Christensen, Jose Lopez and Glenn Rudebusch

Proceedings, 2009, issue Jan

Abstract: Differences between yields on comparable-maturity U.S. Treasury nominal and real debt, the so-called breakeven inflation (BEI) rates, are widely used indicators of inflation expectations. However, better measures of inflation expectations could be obtained by subtracting inflation risk premiums from the BEI rates. We provide such decompositions using an estimated affine arbitrage-free model of the term structure that captures the pricing of both nominal and real Treasury securities. Our empirical results suggest that long-term inflation expectations have been well anchored over the past few years, and inflation risk premiums, although volatile, have been close to zero on average.

Keywords: Inflation; (Finance) (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Inflation Expectations and Risk Premiums in an Arbitrage-Free Model of Nominal and Real Bond Yields (2010)
Journal Article: Inflation Expectations and Risk Premiums in an Arbitrage‐Free Model of Nominal and Real Bond Yields (2010)
Working Paper: Inflation expectations and risk premiums in an arbitrage-free model of nominal and real bond yields (2008)
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