IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-11-00237.html
   My bibliography  Save this article

Break-even inflation rate and the risk premium: an alternative approach to the VAR models in forecasting the CPI

Author

Listed:
  • João Caldeira

    () (Federal University of Rio Grande do Sul)

  • Luiz Furlani

    () (Federal University of Rio Grande do Sul and Banco Sicredi)

Abstract

This paper examines, for the Brazilian case, if break-even inflation rates (BEIR) extracted from fixed income securities are an unbiased estimator of consumer inflation, measured by the CPI. Our estimates suggest that BEIRs are informative about future inflation, especially for the maturity of three months. The main innovation of our work, however, is the method used for estimation, allowing us to conclude that the inflation risk premium, for some maturities considered, varies over time and is not irrelevant from the economic standpoint. We also compared the inflation forecasts obtained from BEIRs with the ones extracted from VAR models used by Central Bank and estimates from the Focus Survey Report's Top5s. The forecasts performed with BEIRs showed greater accuracy than those extracted from VAR models. These projections, however, underperformed those from the Top5s.

Suggested Citation

  • João Caldeira & Luiz Furlani, 2011. "Break-even inflation rate and the risk premium: an alternative approach to the VAR models in forecasting the CPI," Economics Bulletin, AccessEcon, vol. 31(2), pages 1379-1390.
  • Handle: RePEc:ebl:ecbull:eb-11-00237
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I2-P129.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Joseph G. Haubrich & George Pennacchi & Peter H. Ritchken, 2008. "Estimating real and nominal term structures using Treasury yields, inflation, inflation forecasts, and inflation swap rates," Working Paper 0810, Federal Reserve Bank of Cleveland.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    break-even inflation rate; inflation expectations; inflation;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-11-00237. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.