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Macroeconomic Drivers of Inflation Expectations and Inflation Risk Premia

Author

Listed:
  • Jef Boeckx
  • Leonardo Iania
  • Joris Wauters

Abstract

We propose a new affine term structure model to decompose inflation-linked swap (ILS) rates into genuine inflation expectations and inflation risk premia. The model accounts for both short-term macroeconomic factors and long-term economic trends, namely trend inflation and the equilibrium real interest rate. We estimate the model for the US and euro area and find that the inflation risk premium significantly drives ILS rates, with macroeconomic shocks playing different roles across maturities and regions. International factors, particularly oil prices, impact market-based inflation expectations during key global events like the COVID-19 pandemic and the Russian invasion of Ukraine.

Suggested Citation

  • Jef Boeckx & Leonardo Iania & Joris Wauters, 2025. "Macroeconomic Drivers of Inflation Expectations and Inflation Risk Premia," Journal of Financial Econometrics, Oxford University Press, vol. 23(1), pages 733-743.
    • Handle: RePEc:oup:jfinec:v:23:y:2025:i:1:p:733-743.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbae032
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    Cited by:

    1. Burban, Valentin & De Backer, Bruno & Vladu, Andreea Liliana, 2024. "Inflation (de-)anchoring in the euro area," Working Paper Series 2964, European Central Bank.
    2. Ferrari Minesso, Massimo & Van Robays, Ine & Cassinis, Maria Giulia, 2025. "Supply shocks and inflation: timely insights from financial markets," Working Paper Series 3096, European Central Bank.
    3. Nickel, Christiane & Kilponen, Juha & Moral-Benito, Enrique & Koester, Gerrit & Ciccarelli, Matteo & Enders, Almira & Holton, Sarah & Landau, Bettina & Venditti, Fabrizio & Bobeica, Elena & Brand, Cla, 2025. "A strategic view on the economic and inflation environment in the euro area," Occasional Paper Series 371, European Central Bank.

    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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