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June 2011 issue
List of authors
 
Dale, Orphanides and Österholm
Blake and Kirsanova
Baeriswyl
Söderlind
Goodhart and Lim
Cao and Illing
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Inflation Risk Premia and Survey Evidence on Macroeconomic Uncertainty

by Paul Söderlind
University of St. Gallen and CEPR

Abstract

The difference between nominal and real interest rates (break-even inflation) is often used to gauge the market’s inflation expectations—and has become an important tool in monetary policy analysis. However, break-even inflation can move in response to shifts in inflation risk premia and liquidity premia as well as to changes in expected inflation. This paper sheds light on this issue by analyzing the evolution of U.S. break-even inflation from 1997 to mid-2008. Regression results show that survey data on inflation uncertainty and proxies for liquidity premia are important factors.

JEL Codes: E27, E47.

 
Full article (PDF, 21 pages 333 kb)