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Title:The term structure of inflation expectations PDF Logo
Authors:Adrian, Tobias
Wu, Hao
Issue Date:2009
Series/Report no.:Staff Report, Federal Reserve Bank of New York 362
Abstract:We present estimates of the term structure of inflation expectations, derived from an affine model of real and nominal yield curves. The model features stochastic covariation of inflation with the real pricing kernel, enabling us to extract a time-varying inflation risk premium. We fit the model not only to yields, but also to the yields' variance-covariance matrix, thus increasing identification power. We find that model-implied inflation expectations can differ substantially from break-even inflation rates when market volatility is high. Our model's ability to be updated weekly makes it suitable for real-time monetary policy analysis.
Subjects:Affine term structure models
inflation expectations
stochastic volatility
asset pricing
monetary policy
JEL:G10
G12
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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