The term structure of inflation expectations

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 362

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Affine term structure models ; inflation expectations ; stochastic volatility ; asset pricing ; monetary policy ; Inflationserwartung ; Zinsstruktur ; Kapitalertrag ; Volatilität ; Capital Asset Pricing Model ; Geldpolitik ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Adrian, Tobias ; Wu, Hao
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/60860
• Last update: 10.03.2025, 11:45 AM CET