Inflation Compensation and Inflation Expectations in Chile
AbstractThis paper studies the relationship between inflation compensation and inflation expectations in Chile. First, we use the present discounted value methodology to decompose the difference between the unanticipated return of nominal and inflation-linked bonds into news about expected inflation and premiums. Second, we use a general equilibrium asset-pricing model to estimate a time-varying inflation risk premium. Our results show that inflation-expectations movements account for about only 25% of the relative returns, indicating that premiums are a very important source of changes in inflation compensation. We also show that the estimated inflation risk premium is time-varying but seems to be of negligible size, with average size and volatility very close to zero. l II) could be helpful on this task.
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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 421.
Date of creation: Jun 2007
Date of revision:
Other versions of this item:
- Mauricio Larraín, 2007. "Inflation compensation and inflation expectations in Chile," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 305-329, julio-sep.
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- Bekaert, Geert & Wei, Min & Xing, Yuhang, 2007.
"Uncovered interest rate parity and the term structure,"
Journal of International Money and Finance,
Elsevier, vol. 26(6), pages 1038-1069, October.
- Geert Bekaert & Min Wei & Yuhang Xing, 2002. "Uncovered Interest Rate Parity and the Term Structure," NBER Working Papers 8795, National Bureau of Economic Research, Inc.
- Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
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