Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153596
Authors: 
García, Juan Angel
Werner, Thomas
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1162
Abstract: 
This paper investigates the link between the perceived inflation risks in macroeconomic forecasts and the inflation risk premia embodied in financial instruments. We first provide some stylized facts about the term structure of inflation compensation, inflation expectations and inflation risk premia in the euro area bond market. Latent factor models like ours fit data well, but are often critisized for lacking economic interpretation. Using survey inflation risks, we show that perceived asymmetries in inflation risks help interpret the dynamics of long-term inflation risk premia, even after controlling for a large number of macro and financial factors.
Subjects: 
Affine term structure models
inflation compensation
inflation risk
inflation risk premia
inflation risks
state-space modelling
JEL: 
G12
E31
E43
Document Type: 
Working Paper

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