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The term structure of inflation risk premia and macroeconomic dynamics

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Author Info
Peter Hördahl () (European Central Bank)
Oreste Tristani (European Central Bank)
David Vestin (European Central Bank)

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Abstract

This paper estimates the size and dynamics of inflation risk premia in the euro area using information from nominal and index-linked yields. Our main result is that the inflation risk premium on long-term nominal yields is nonnegligible from an economic viewpoint. Break-even inflation rates — i.e. the difference between nominal and real yields with identical maturity — therefore represent a relatively crude approximation of inflation expectations. Break-even inflation rates are also found to contain useful information to forecast inflation and output growth, even when taking into account standard indicators such as the slope of the yield curve

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 203.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:203

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Keywords: Term structure of interest rates; risk premia; policy rules;

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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    Other versions:
  4. Hans Dewachter & Marco Lyrio, 2002. "Macro Factors and the Term Structure of Interest Rates," International Economics Working Papers Series wpie007, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Coffinet, J. & Frappa, S., 2008. "Macroeconomic Surprises and the Inflation Compensation Curve in the Euro Area," Documents de Travail 220, Banque de France. [Downloadable!]
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