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 40 basis points 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.

Inflation Risk Premia, Yield Volatility, and Macro Factors

BERARDI, ANDREA
;
PLAZZI, ALBERTO
2019

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 40 basis points 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.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10278/3712831
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