Disclaimer: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

This paper analyses the predictive power of market-based and survey-based inflation expectations for actual inflation. We use the data on inflation swaps and the forecasts from the Survey of Professional Forecasters for the euro area and the United States. The results show that both market-based and survey-based measures have a non-negligible predictive power for inflation developments, as compared to statistical benchmark models. Therefore, for horizons of one and two years ahead, market-based and survey-based inflation expectations actually convey information on future inflation developments. Keywords: inflation, expectations, forecasting, swaps, surveys, market, professional forecasters 1. Introduction Models used for inflation forecasting are usually based on statistical time series properties of inflation and on information regarding economic variables. This paper analyses whether the information on inflation expectations has predictive power for actual inflation. We show that short-term inflation expectations derived from survey and market data for the euro area and United States are informative predictors of future inflation developments. For market-based measures of inflation expectations, the paper focuses on inflation-linked swaps. In these contracts, a fixed inflation swap rate is exchanged against the realised inflation rate over an agreed period of time. The fixed leg of the swap can be thus interpreted as a measure of investors' inflation expectations over a certain contract duration. For survey-based measures of inflation expectations, the paper focuses on the results from the Survey of Professional Forecasters conducted by the European Central Bank for the euro area and the Federal Reserve Bank of Philadelphia for the United States. A relatively large panel of respondents in this survey assures a good data quality, as compared to other surveys available on inflation. With respect to the forecast horizon, we focus on the shorter-term measures, to ensure that the analysis of the forecasting performance is statistically feasible, given the size of the samples. This paper contributes to the literature by providing evidence that market-based and survey-based measures of inflation expectations are informative sources of information on future inflation. Assessing the actual performance of various measures of inflation expectations is important given the key role ascribed to inflation expectations in the inflation generating process. The usefulness of survey-based measures of inflation expectations in forecasting inflation has been documented in Ang, Bekaert, and Wei (2007). In a similar vein, Gil-Alana, Moreno, and Perez de Gracia (2012) report that, for the United States, survey-based expectations outperform standard time series models. However, in a more recent study, Trehan (2015) shows that the forecast accuracy of household and professional inflation surveys has deteriorated. With respect to the role of financial indicators for forecasting inflation and output, Stock and Watson (2003) fi...

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This paper quantifies liquidity and credit premia in German and French government bond yields. For this purpose, we estimate term structures of governmentguaranteed agency bonds and exploit the fact that any difference in their yields vis-à-vis government bonds can be attributed to differences in liquidity premia. Adding the information on risk-free rates, we obtain model-free and model-based gauges of sovereign credit premia, which are an important alternative to the information based on CDS markets. The results allow us to quantify the price impact of so-called "safe haven flows", which strongly affected bond markets in late 2008/early 2009 and again during some phases of the sovereign debt crisis. Thus, we show to what extent these effects disguised the increase of sovereign credit premia in the government yields of core euro area countries.

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