Inflation Risk Premia, Yield Volatility and Macro Factors

Swiss Finance Institute Research Paper No. 18-13

Published, Journal of Financial Econometrics, 2019, Vol. 17:3, 397–431

51 Pages Posted: 30 Jan 2018 Last revised: 5 Mar 2021

See all articles by Andrea Berardi

Andrea Berardi

Ca Foscari University of Venice - Dipartimento di Economia

Alberto Plazzi

Swiss Finance Institute; Universita' della Svizzera italiana

Date Written: January 10, 2018

Abstract

We incorporate a latent stochastic volatility factor and macroeconomic expectations in an affine model for the term structure of nominal and real rates. We estimate the model over 1999-2016 on U.S. data for nominal and TIPS yields, the realized and implied volatility of T-bonds and survey forecasts of GDP growth and inflation. We find relatively stable inflation risk premia averaging at 40bps at the long-end, and which are strongly related to the volatility factor and conditional mean of output growth. We also document real risk premia that turn negative in the post-crisis period, and a non-negligible variance risk premium.

Keywords: Term Structure, Inflation Risk Premia, TIPS, Yield Volatility, Macro Factors

JEL Classification: G12, E43, E44, C58

Suggested Citation

Berardi, Andrea and Plazzi, Alberto, Inflation Risk Premia, Yield Volatility and Macro Factors (January 10, 2018). Swiss Finance Institute Research Paper No. 18-13, Published, Journal of Financial Econometrics, 2019, Vol. 17:3, 397–431, Available at SSRN: https://ssrn.com/abstract=3106878 or http://dx.doi.org/10.2139/ssrn.3106878

Andrea Berardi

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Alberto Plazzi (Contact Author)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Universita' della Svizzera italiana ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

HOME PAGE: http://usi.to/mpy

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