Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
983413 | The Quarterly Review of Economics and Finance | 2011 | 11 Pages |
Abstract
We propose a novel method to correct break-even inflation rates derived from index-linked bonds for liquidity and inflation risk premia without resorting to survey based measures. In a state-space framework the difference between break-even inflation rates and unobserved true inflation expectation is explained by measures of time-varying liquidity and inflation risk premia. Our results have better forecasting performance for the average annual inflation rate over the following 10 years than raw break-even rates and the Survey of Professional Forecasters.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Florian Kajuth, Sebastian Watzka,