Inflation expectations and risk premia in emerging bond markets: Evidence from Mexico

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 961

Classification and Topics

• Classification: Wirtschaft ; Expectations; Speculations ; Price Level; Inflation; Deflation ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Monetary Policy ; Central Banks and Their Policies ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: term structure modeling ; liquidity risk ; financial market frictions ; central bank credibility

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beauregard, Remy ; Christensen, Jens H. E. ; Fischer, Eric ; Zhu, Simon
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/241154
• Last update: 10.03.2025, 11:41 AM CET