EconPapers    
Economics at your fingertips  
 

An analysis of objective inflation expectations and inflation risk premia

Sara Cecchetti (), Adriana Grasso () and Marcello Pericoli ()
Additional contact information
Sara Cecchetti: Bank of Italy
Adriana Grasso: European Central Bank
Marcello Pericoli: Bank of Italy

No 1380, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We study euro-area risk-adjusted expected inflation and the inflation risk premium at different maturities, leveraging inflation swaps, inflation options and survey-based forecasts. We introduce a model that features time-varying long-term average inflation and time-varying inflation volatility and we anchor market-based risk-adjusted measures of expected inflation to survey-based inflation forecasts. The results show that medium-term risk-adjusted expected inflation was close to the ECB's aim from 2010 to mid-2014, has since fallen to a low in March 2020 and has risen significantly since the second half of 2021. The medium-term inflation risk premium was positive until 2014 and turned negative since 2015 despite a sharp rise at the end of 2021. The risk-adjusted probabilities of exceeding the ECB's inflation aim and of seeing deflation over the medium term have been low on average.

Keywords: inflation density; inflation risk premium; objective probability (search for similar items in EconPapers)
JEL-codes: C22 C58 E31 E44 G12 (search for similar items in EconPapers)
Date: 2022-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk, nep-mon and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://www.bancaditalia.it/pubblicazioni/temi-dis ... 380/en_tema_1380.pdf (application/pdf)

Related works:
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:bdi:wptemi:td_1380_22

Access Statistics for this paper

More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2023-01-31
Handle: RePEc:bdi:wptemi:td_1380_22