TAILIEUCHUNG - Florian Kajuth und Sebastian Watzka: Inflation expectations from index-linked bonds: Correcting for liquidity and inflation risk premia

We provide a critical assessment of the method used by the Cleveland Fed to correct expected inflation derived from index-linked bonds for liquidity and inflation risk premia and show how their method can be adapted to account for time-varying inflation risk premia. Furthermore, we show how sensitive the Cleveland Fed approach is to different measures of the liquidity premium. In addition we propose an alternative approach to decompose the bias in inflation expectations derived from index-linked bonds using a state-space estimation. Our results show that once one accounts for time-varying liquidity and inflation risk premia current 10-year . inflation expectations are lower than estimated by the Cleveland. | LMU LUDWIG-MAXI MI LI ANS-UNIVERSITÂT MỦNCHEN VOLKSWIRTSCHAFTLICHE FAKULTAT rriM Florian Kajuth und Sebastian Watzka Inflation expectations from index-linked bonds Correcting for liquidity and inflation risk premia Munich Discussion Paper No. 2008-13 Department of Economics University of Munich Volkswirtschaftliche Fakultat Ludwig-Maximilians-Universitat Munchen Online at http 4858 Inflation expectations from index-linked bonds Correcting for liquidity and inflation risk premia Florian Kajuth Sebastian Watzkafl Ludwig-Maximilians-Universitat Munich Department of Economics July 2008 Abstract We provide a critical assessment of the method used by the Cleveland Fed to correct expected inflation derived from index-linked bonds for liquidity and inflation risk premia and show how their method can be adapted to account for time-varying inflation risk premia. Furthermore we show how sensitive the Cleveland Fed approach is to different measures of the liquidity premium. In addition we propose an alternative approach to decompose the bias in inflation expectations derived from index-linked bonds using a state-space estimation. Our results show that once one accounts for time-varying liquidity and inflation risk premia current 10-year . inflation expectations are lower than estimated by the Cleveland Fed. Keywords Inflation expectations liquidity risk premium inflation risk premium treasury inflation-protected securities TIPS state-space model JEL Classification E31 E52 G12 1 f We would like to thank Gerhard Illing for motivating us to study the topic and for very stimulating discussions. We would also like to thank Tara Sinclair and participants at the Macro Seminar at the LMU Department of Economics for helpful comments and suggestions. All errors are of course our own responsibility. 1 1 Introduction In 1997 the . government started to issue a ten-year inflation-linked .

• Ngân hàng - Tín dụng
• Build or Improve
• Improvement and Structure
• Syphilis
• Protozoal Infection
• Human Trichomoniasis
• Current Perspectives
• Big Data Now
• from OReilly Radar
• The Linux Development
• Programming Environment
• Linux Systems
• Vietnam Journal of Science and Technology
• Marine alginate oligosaccharides
• Current use and future perspectives
• Food industry and pharmaceutical applications
• The functional and biological mechanisms
• Medical Therapy
• Current Status
• Future Targets
• Temporal Trends
• Future Trends
• Cognitive perspective
• Current practice
• Cognitive perspectives of dog owners
• Correct rearing practices
• Their counter parts
• Evasion Strategies
• Neisseria gonorrhoeae