The Term Structure and Inflation Uncertainty

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper develops and estimates a Quadratic-Gaussian model of the U.S. term structure that can accommodate the rich dynamics of in ‡ation risk premia over the 1983-2013 period by allowing for time-varying market prices of in ‡ation risk and incorporating survey information on in ‡ation uncertainty in the estimation. The model captures changes in premia over very diverse periods, from the in ‡ation scare episodes of the 1980s, when perceived in ‡ation uncertainty was high, to the more recent episodes of negative premia, when perceived in ‡ation uncertainty has been considerably smaller. A decomposition of the nominal ten-year yield suggests a decline in the estimated in ‡ation risk premium of 1.7 percentage points from the early 1980s to mid-1990s. Subsequently, its predicted value has ‡uctuated around zero and turned negative at times, reaching its lowest values (about -0.6 percentage points) before the latest …nancial crisis, in [2005][2006][2007], and during the subsequent weak recovery, in 2010-2012. The model's ability to generate sensible estimates of the in ‡a-tion risk premium has important implications for the other components of the nominal yield: expected real rates, expected in ‡ation, and real risk premia. Terms of use: Documents in

Measuring Inflation Anchoring and Uncertainty: A U.S. and Euro Area Comparison

“…See Campbell and Viceira (), Buraschi and Jiltsov (), Ang, Bekaert, and Wei (), Hördahl and Tristani (), Ajello, Benzoni, and Chyruk (), Chernov and Mueller (), Haubrich, Pennacchi, and Ritchken (), Abrahams et al. (), Grishchenko and Huang (), Fleckenstein, Longstaff, and Lustig (), Crump, Eusepi, and Moench (), Breach, D'Amico, and Orphanides (), and D'Amico, Kim, and Wei ().…”