Estimation Of The Inflation Risk Premium

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Estimation Of The Inflation Risk Premium

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Author : Pavol Povala
language : en
Publisher:
Release Date : 2007

Estimation Of The Inflation Risk Premium written by Pavol Povala and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.

This master's thesis analyzes the inflation risk premium embodied in the nominal interest rates based on UK government index-linked and nominal securities data in a period of high and volatile inflation, 1985 to 1992, and in a period of low and stable inflation, 1997 to 2007. To recover the inflation risk premium a discrete time term structure model is estimated, using jointly real and nominal yields. Inflation is modeled as an observable factor uncorrelated with latent factors in an affine Gaussian framework. Subsequently, the dynamics of the inflation risk premium and its driving factors are studied in both periods. In the first period, I find the inflation risk premium to be significant most of the time, strongly time-varying and occasionally negative, in the second period the inflation risk premium is only significant at a few points and significantly lower. The variance decomposition of the nominal-to-real yield spread shows that movements in spreads are mostly driven by changes in the inflation risk premium, especially at the long end of the curve.

An Estimate Of The Inflation Risk Premium Using A Three Factor Affine Term Structure Model

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Author : J. Benson Durham
language : en
Publisher:
Release Date : 2006

An Estimate Of The Inflation Risk Premium Using A Three Factor Affine Term Structure Model written by J. Benson Durham and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Interest rates categories.

The Inflation Risk Premium In The Term Structure Of Interest Rates

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Author : Peter Hördahl
language : en
Publisher:
Release Date : 2013

The Inflation Risk Premium In The Term Structure Of Interest Rates written by Peter Hördahl and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

A dynamic term structure model based on an explicit structural macroeconomic framework is used to estimate inflation risk premia in the United States and the euro area. On average over the past decade, inflation risk premia have been relatively small but positive. They have exhibited an increasing pattern with respect to maturity for the euro area and a flatter one for the United States. Furthermore, the estimates imply that risk premia vary over time, mainly in response to fluctuations in economic growth and inflation.

What Was The Market S View Of U K Monetary Policy Estimating Inflation Risk And Expected Inflation With Indexed Bonds

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Author : Eli M. Remolona
language : en
Publisher:
Release Date : 2008

What Was The Market S View Of U K Monetary Policy Estimating Inflation Risk And Expected Inflation With Indexed Bonds written by Eli M. Remolona and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.

A measure of the credibility of monetary policy is the inflation risk premium in nominal yields. This will be time varying and can be estimated by combining the information in the nominal term structure with that in the real term structure. We estimate these risk premia using a generalized CIR affine-yield model, with one factor driving the real term structure of monthly observations on two-year, five-year and ten-year UK index-linked debt and two factors driving the term structure of the corresponding nominal yields. Our estimates show that the inflation risk premium contributes on average about 100 basis points to nominal yields. Since the exit from the ERM this has fallen to 70 basis points, showing greater policy credibility. The inflation risk premium provides a correction to the break-even method of forecasting inflation and produces an unbiased forecast.

The Inflation Risk Premium

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Author : Alexander de Roode
language : en
Publisher:
Release Date : 2014

The Inflation Risk Premium written by Alexander de Roode and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

This paper examines the inflation risk premium in affine term structure models. By estimating empirical distributions for the inflation risk premium using a new Bayesian methodology, we find a wide range of likely estimates. The 95% credibility intervals for 5 year maturity range from about -95 to 88 basis points in the UK and -4 to 119 basis points in the US during the period of 2004-2012. Our results show that affine term structure models are unable to capture the inflation risk premium accurately. To that end, we use a Bayesian methodology to show how the financial crisis in 2008 impacts the uncertainty regarding inflation risk premium. We find a substantial upward shift in the inflation risk premium in the UK while an downward shift in the US. In particular, our 95% credibility intervals shift to -105 to 150 in the UK and -50 to 92 basis points in the US.

Inflation Fisher Equation And The Term Structure Of Inflation Risk Premia

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Author : Ren-Raw Chen
language : en
Publisher:
Release Date : 2010

Inflation Fisher Equation And The Term Structure Of Inflation Risk Premia written by Ren-Raw Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.

In this paper, we study inflation risk and the term structure of inflation risk premia in the U.S. nominal interest rates through the Treasury Inflation Protection Securities (TIPS) and an analytical two-factor Cox-Ingersoll-Ross (CIR) model with correlated real rate and inflation. The analytical formula facilitates the estimation of the model parameters and improves the accuracy of the valuation of nominal rates and TIPS, and especially enables us to estimate the term structure of inflation risk premia.We use the two-factor model to evaluate the inflation-index bonds and study the relationship between the real rate and the expected inflation rate implied by the nominal Constant Maturity Treasury (CMT) rates for the period of January 1998 through December 2004. We use the Unscented Kalman Filter (UKF) to estimate the model and the inflation risk premium. The empirical evidence indicates that the expected inflation rate, as opposed to those derived from the consumer price indexes, is very stable and the inflation risk premia demonstrate a steep term structure.

What Was The Market S View Of Uk Monetary Policy

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Author : Eli M. Remolona
language : en
Publisher:
Release Date : 1998

What Was The Market S View Of Uk Monetary Policy written by Eli M. Remolona and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998 with Bonds categories.

The Value Of Inflation Compensation And A Test For The Existence Of An Inflation Risk Premium

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Author : Andrew R. Aziz
language : en
Publisher:
Release Date : 1996*

The Value Of Inflation Compensation And A Test For The Existence Of An Inflation Risk Premium written by Andrew R. Aziz and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996* with categories.

Inflation Risk Premium

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Author : Olesya V. Grishchenko
language : en
Publisher:
Release Date : 2019

Inflation Risk Premium written by Olesya V. Grishchenko and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

Quot;Inflation-indexed securities would appear to be the most direct source of information about inflation expectations and real interest rates.quot; (Bernanke, 2004). In this paper we study the term structure of real interest rates, expected inflation, and inflation risk premia using data on prices of Treasury Inflation Protected Securities (TIPS) over the period 2000-2007. The estimates of the 10-year inflation risk premium are between 11 and 22 basis points for 2000-2007 depending on the proxy used for the expected inflation. Furthermore, we find that the inflation risk premium is time varying and, specifically, negative in the first half (which might be due to either concerns of deflation or low liquidity of the TIPS market), but positive in the second half of the sample.

Inflation Risk Premia In The Term Structure Of Interest Rates

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Author : Peter Hördahl
language : en
Publisher:
Release Date : 2007

Inflation Risk Premia In The Term Structure Of Interest Rates written by Peter Hördahl and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Banks and banking, Central categories.

"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." - - Abstract.