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Abstract Details
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Activity Number:
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521
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Type:
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Contributed
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Date/Time:
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Wednesday, August 3, 2011 : 10:30 AM to 12:20 PM
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Sponsor:
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Business and Economic Statistics Section
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| Abstract - #300692 |
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Title:
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Inflation Expectations and Risk Premium
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Author(s):
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Luis Fernando Melo*+
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Companies:
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Central Bank of Colombia
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Address:
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Carrera 7 # 14-78 , Bogota, -----, Colombia
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Keywords:
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Break Even Inflation ;
Inflation risk premium ;
Inflation expectations ;
State space models ;
Affine term structure models
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Abstract:
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The Break Even Inflation is estimated using the nominal and real government Colombian bonds for the period January 2003 to November 2009. This measure is decomposed in inflation expectations and inflation risk premium. The inflation expectations are calculated using a state space representation of an extended affine term structure model. In order to improve the forecasts, this model incorporates the inflation expectations 12 months ahead of the Colombian Central Bank survey. The results show an inflation expectation downward trend, which may be related to an increasing confidence in monetary policy. This hypothesis is also supported by a decreasing trend in the inflation risk premium for medium and long term maturities (two and five years). Finally, the results indicate that the break even inflation is a good indicator of the inflation expectations for short term forecast horizons (one y
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Authors who are presenting talks have a * after their name.
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