Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241154 
Year of Publication: 
2021
Series/Report no.: 
Staff Report No. 961
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
To study inflation expectations and associated risk premia in emerging bond markets, this paper provides estimates for Mexico based on an arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for their liquidity risk. In addition to documenting the existence of large and time-varying liquidity premia in nominal and real bond prices that are only weakly correlated, the results indicate that long-term inflation expectations in Mexico are well anchored close to the inflation target of the Bank of Mexico. Furthermore, Mexican inflation risk premia are larger and more volatile than those in Canada and the United States.
Subjects: 
term structure modeling
liquidity risk
financial market frictions
central bank credibility
JEL: 
D84
E31
E47
E52
E58
G12
Document Type: 
Working Paper

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