Inflation Risk Premia, Yield Volatility, and Macro Factors

Andrea Berardi and Alberto Plazzi

Journal of Financial Econometrics, 2019, vol. 17, issue 3, 397-431

Abstract: We incorporate a latent stochastic volatility factor and macroeconomic expectations in an affine model for the term structure of nominal and real rates. We estimate the model over 1999–2016 on U.S. data for nominal and TIPS yields, the realized and implied volatility of T-bonds, and survey forecasts of GDP growth and inflation. We find relatively stable inflation risk premia averaging at 40 basis points at the long-end, and which are strongly related to the volatility factor and conditional mean of output growth. We also document real risk premia that turn negative in the post-crisis period, and a non-negligible variance risk premium.

Keywords: inflation risk premia; macro factors; term structure; TIPS; yield volatility (search for similar items in EconPapers)
JEL-codes: C58 E43 E44 G12 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Working Paper: Inflation Risk Premia, Yield Volatility and Macro Factors (2018)
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