Macroeconomic drivers of Inflation Expectations and Inflation Risk Premia

Boeckx, Jef;Iania, Leonardo;Wauters, Joris
(2023) , 41 pages

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Authors
  • Boeckx, JefNational Bank of Belgium
    Author
  • Iania, LeonardoUCLouvain
    Author
  • Wauters, JorisNational Bank of Belgium
    Author
Abstract
We propose a new model to decompose inflation swaps into genuine inflation expectations and risk premiums. We develop a no-arbitrage term structure model with stochastic endpoints, separating macroeconomic variables into transitory parts and long-run, economically-grounded, determinants, such as the equilibrium real interest rate and the inflation target. Our estimations deliver new insights as to how macroeconomic variables affect market-based inflation expectation measures.
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Boeckx, J., Iania, L., & Wauters, J. (2023). Macroeconomic drivers of Inflation Expectations and Inflation Risk Premia (LIDAM Discussion Paper LFIN 2023/03). https://hdl.handle.net/2078.5/104513