Inflation risks and inflation risk premia

Garcí­a, Juan Angel and Thomas Werner

No 1162, Working Paper Series from European Central Bank

Abstract: This paper investigates the link between the perceived inflation risks in macroeconomic forecasts and the inflation risk premia embodied in financial instruments. We first provide some stylized facts about the term structure of inflation compensation, inflation expectations and inflation risk premia in the euro area bond market. Latent factor models like ours fit data well, but are often criticized for lacking economic interpretation. Using survey inflation risks, we show that perceived asymmetries in inflation risks help interpret the dynamics of long-term inflation risk premia, even after controlling for a large number of macro and financial factors. JEL Classification: G12, E31, E43

Keywords: affine term structure models; inflation compensation; inflation risk; inflation risk premia; inflation risks; state-space modelling (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
Note: 336092
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101162

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