Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153704
Authors: 
Hördahl, Peter
Tristani, Oreste
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1270
Abstract: 
We use a joint model of macroeconomic and term structure dynamics to estimate inflation risk premia in the United States and the euro area. To sharpen our estimation, we include in the information set macro data and survey data on inflation and interest rate expectations at various future horizons, as well as term structure data from both nominal and index-linked bonds. Our results show that, in both currency areas, inflation risk premia are relatively small, positive, and increasing in maturity. The cyclical dynamics of long-term inflation risk premia are mostly associated with changes in output gaps, while their high-frequency fluctuations seem to be aligned with variations in inflation. However, the cyclicality of inflation premia differs between the US and the euro area. Long term inflation premia are countercyclical in the euro area, while they are procyclical in the US.
Subjects: 
central bank credibility
inflation risk premia
Term structure of interest rates
JEL: 
E43
E44
Document Type: 
Working Paper

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