This paper estimates the size and dynamics of inflation risk premia in the euro area, based on a joint model of macroeconomic and term structure dynamics. Information from both nominal and index-linked yields is used in the empirical analysis. Our results indicate that term premia in the euro area yield curve reflect predominantly real risks, i.e. risks which affect the returns on both nominal and index-linked bonds. On average, inflation risk premia were negligible during the EMU period but occasionally subject to statistically significant fluctuations in 2004-2006. Movements in the raw break-even rate appear to have mostly reflected such variations in inflation risk premia, while long-term inflation expectations have remained remarkably anchored from 1999 to date.
|Keywords:||monetarna politika, centralne banke, inflacija, obrestna mera, struktura, tveganje, monetary policy, central banks, inflation, interest rate, structure, risk|
|Work type:||Not categorized (r6)|
|Organization:||EF - Faculty of Economics|
|Publisher:||Bank for International Settlements, Monetary and Economic Dept.|
|Number of pages:||48 str.|
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