Search Results
Working Paper
Measuring Inflation Anchoring and Uncertainty : A US and Euro Area Comparison
We use several US and euro-area surveys of professional forecasters to estimate a dynamic factor model of inflation featuring time-varying uncertainty. We obtain survey-consistent distributions of future inflation at any horizon, both in the US and the euro area. Equipped with this model, we propose a novel measure of the anchoring of inflation expectations that accounts for inflation uncertainty. Our results suggest that following the Great Recession, inflation anchoring improved in the US, while mild de-anchoring occurred in the euro-area. As of our sample end, both areas appear to be ...
Discussion Paper
Has the Inflation Risk Premium Fallen? Is it Now Negative?
In this note, we examine the theoretical determinants of one important component of inflation compensation, the inflation risk premium, and argue that a secular decline in the inflation risk premium may be responsible for a substantial portion of the decline in inflation compensation in recent years.
Working Paper
How Stable are Inflation Expectations in the Euro Area? Evidence from the Euro-Area Financial Markets
We analyze evolution of inflation expectations in the euro area (EA) using a novel measure of inflation expectations implied by the French nominal and inflation-indexed bonds. Overall, we find that EA inflation expectations have been relatively well anchored in the 2004 -- 2019 sample but have been somewhat sensitive to the incoming macroeconomic news and monetary policy shocks in the sample that includes the COVID-19 pandemic. Our results are robust with respect to the use of different inflation-indexed securities data, such as the EA inflation-linked swaps.
Working Paper
The information content of the embedded deflation pption in TIPS
In this paper we estimate the value of the embedded option in U.S. Treasury Inflation Protected Securities (TIPS). The option value exhibits significant time variation that is correlated with periods of deflationary expectations. We use our estimated option values to construct an embedded option price index and an embedded option return index. We then use our embedded option indices as independent variables and examine their statistical and economic significance for explaining the future inflation rate. In most of our regressions, our embedded option return index is significant even in the ...
Working Paper
The informational content of the embedded deflation option in TIPS
In this paper we estimate the value of the embedded option in U.S. Treasury Inflation Protected Securities (TIPS). The option value exhibits significant time variation that is correlated with periods of deflationary expectations. We use our estimated option values to construct an embedded option price index and an embedded option return index. We then use our embedded option indices as independent variables and examine their statistical and economic significance for explaining the future inflation rate. In almost all of our regressions, the embedded option return index is significant even in ...
Working Paper
Term Structure of Interest Rates with Short-run and Long-run Risks
Bond returns are time-varying and predictable. What economic forces drive this variation? To answer this long-standing question, we propose a consumption-based model with recursive preferences, long-run risks, and inflation non-neutrality. Our model offers two important insights. First, our model matches well the post-1990 nominal upward-sloping U.S. Treasury yield curve. Second, consistent with our model's implication, variance risk premium based on the U.S. interest rate derivatives data emerges as a strong predictor for short-horizon Treasury excess returns, above and beyond the predictive ...