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Inflation Risk Premia, Yield Volatility and Macro Factors

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  • Andrea Berardi

    (Department of Economics (University of Verona))

Abstract

This paper presents and estimates an innovative term structure model where inflation expectations and inflation risk premia are strictly interconnected with both the timevarying volatility of interest rates and investors’ expectations of future GDP growth. The estimation of the model is based on U.S. data over the 1999 to 2012 sample period. Distinct from previous studies, the empirical work explicitly considers data on both the implied volatility of Treasury bonds and survey forecasts of GDP growth, as well as data on nominal Treasury yields, TIPS yields and survey forecasts of CPI inflation. The estimated inflation risk premia, which are relatively low and less volatile with respect to earlier empirical evidence, are negatively related to the volatility of interest rates and have a strongly positive link with the stochastic conditional mean of GDP growth.

Suggested Citation

  • Andrea Berardi, 2013. "Inflation Risk Premia, Yield Volatility and Macro Factors," Working Papers 27/2013, University of Verona, Department of Economics.
    • Handle: RePEc:ver:wpaper:27/2013
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Keywords: Term Structure and Macroeconomy; Inflation Risk Premia; TIPS; Yield Volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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