Photo from wikipedia
ABSTRACT The breakeven inflation, the differential between nominal and real yields of bonds, is often used as a predictor of future inflation. The model presented here decomposes this interest rate… Click to show full abstract
ABSTRACT The breakeven inflation, the differential between nominal and real yields of bonds, is often used as a predictor of future inflation. The model presented here decomposes this interest rate differential into a risk premium and implicit inflation using a parametric formulation based on no-arbitrage conditions using nominal and indexed yield curves in Brazil, via an affine model of the Nelson–Siegel family. The measures of implicit inflation obtained from the model are shown to be unbiased estimators of future inflation for short horizons and carry some information for long horizons, and the model forecasts are superior to market surveys.
Journal Title: Emerging Markets Finance and Trade
Year Published: 2017
Link to full text (if available)
Share on Social Media: Sign Up to like & get
recommendations!