Inflation expectations from index-linked bonds: Correcting for liquidity and inflation risk premia
We propose a novel method to correct break-even inflation rates derived from index-linked bonds for liquidity and inflation risk premia without resorting to survey based measures. In a state-space framework the difference between break-even inflation rates and unobserved true inflation expectation i...
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| Veröffentlicht in: | The Quarterly review of economics and finance 2011-06, Vol.51 (3), p.225-235 |
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| container_end_page | 235 |
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| container_title | The Quarterly review of economics and finance |
| container_volume | 51 |
| creator | Kajuth, Florian Watzka, Sebastian |
| description | We propose a novel method to correct break-even inflation rates derived from index-linked bonds for liquidity and inflation risk premia without resorting to survey based measures. In a state-space framework the difference between break-even inflation rates and unobserved true inflation expectation is explained by measures of time-varying liquidity and inflation risk premia. Our results have better forecasting performance for the average annual inflation rate over the following 10 years than raw break-even rates and the Survey of Professional Forecasters. |
| doi_str_mv | 10.1016/j.qref.2011.03.004 |
| format | Article |
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| identifier | ISSN: 1062-9769 |
| ispartof | The Quarterly review of economics and finance, 2011-06, Vol.51 (3), p.225-235 |
| issn | 1062-9769 1878-4259 |
| language | eng |
| recordid | cdi_proquest_journals_885483947 |
| source | RePEc; ScienceDirect |
| subjects | Bonds Inflation expectations Inflation expectations Liquidity risk premium Inflation risk premium Treasury inflation-protected securities (TIPS) State-space model Inflation rates Inflation risk premium Liquidity Liquidity risk premium Risk premiums State-space model Studies Treasury inflation-protected securities (TIPS) |
| title | Inflation expectations from index-linked bonds: Correcting for liquidity and inflation risk premia |
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