Inflation Risk Premia, Yield Volatility and Macro Factors

Andrea Berardi and Alberto Plazzi
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Andrea Berardi: Ca Foscari University of Venice

No 18-13, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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 40bps 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: Term Structure; Inflation Risk Premia; TIPS; Yield Volatility; Macro Factors (search for similar items in EconPapers)
JEL-codes: C58 E43 E44 G12 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2018-01, Revised 2018-03
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Inflation Risk Premia, Yield Volatility, and Macro Factors (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1813

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