Journal Article
Coronavirus and the Risk of Deflation
http://fedora:8080/fcrepo/rest/objects/authors/; Christensen, Jens H. E.; Zhu, Simon (2020-05-11)
The pandemic caused by COVID-19 represents an unprecedented negative shock to the global economy that is likely to severely depress economic activity in the near term. Could the crisis also put substantial downward pressure on price inflation? One way to assess the potential risk to the inflation outlook is by analyzing prices of standard and inflation-indexed government bonds. The probability of declining price levels—or deflation—among four major countries within the next year indicates that the perceived risk remains muted, despite the recent economic turmoil.
FRBSF Economic Letter , Volume 2020 , Issue 11 , Pages 5

Journal Article
Are Inflation Expectations Well Anchored in Mexico?
Beauregard, Remy; Christensen, Jens H. E.; Fischer, Eric; Zhu, Simon (2023-01-17)
Price inflation has increased sharply since early 2021 in many countries, including Mexico. If sustained, high inflation in Mexico could raise questions about the ability of its central bank to bring inflation down to its 3% inflation target. However, analyzing the difference between market prices of nominal and inflation-indexed government bonds suggests investors’ long-term inflation expectations in Mexico are close to the central bank’s inflation target and are projected to remain so in coming years.
FRBSF Economic Letter , Volume 2023 , Issue 01 , Pages 6

Report
Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico
Christensen, Jens H. E.; Zhu, Simon; Beauregard, Remy; Fischer, Eric (2021-03-01)
To study inflation expectations and associated risk premia in emerging bond markets, this paper provides estimates for Mexico based on an arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for their liquidity risk. In addition to documenting the existence of large and time-varying liquidity premia in nominal and real bond prices that are only weakly correlated, the results indicate that long-term inflation expectations in Mexico are well anchored close to the inflation target of the Bank of Mexico. Furthermore, Mexican inflation risk premia are larger ...
Staff Reports , Paper 961

Journal Article
Are Banks Exposed to Interest Rate Risk?
Zhu, Simon; Paul, Pascal (2020-06-22)
While banks seem to face inherent risk from short-term interest rate changes, in practice they structure their balance sheets to avoid exposure to such risk. Nonetheless, recent research finds that banks cannot offload all of the interest rate risk they are naturally exposed to. Historically, banks’ profit margins reflect their compensation for taking on interest rate risk and their stock prices are highly sensitive to changes in interest rates. These findings can help practitioners assess banks’ risk exposures and may have implications for unconventional monetary policy.
FRBSF Economic Letter , Volume 2020 , Issue 16 , Pages 05

Working Paper
Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico
Christensen, Jens H. E.; Zhu, Simon; Beauregard, Remy; Fischer, Eric (2021-02-24)
To study inflation expectations and associated risk premia in emerging bond markets, thispaper provides estimates for Mexico based on an arbitrage-free dynamic term structuremodel of nominal and real bond prices that accounts for their liquidity risk. In addition todocumenting the existence of large and time-varying liquidity premia in nominal and realbond prices that are only weakly correlated, the results indicate that long-term inflationexpectations in Mexico are well anchored close to the inflation target of the Bank ofMexico. Furthermore, Mexican inflation risk premia are larger and more ...
Working Paper Series , Paper 2021-08