Inflation Risk Premia in the Term Structure of Interest Rates : Evidence from Euro Area Inflation Swaps

This paper estimates Inflation risk premia in the Euro area based on nominal swap yields, inflation swap rates, CPI and surveys. To assess the uncertainty of the infaltion risk premia estimates we use a Markov Chain Monte Carlo method to estimate our model. We find that including surveys help identifying risk premia, in fact a model that does not include surveys may conclude that inflation risk premia is insignificant, where a model including surveys will that it significant. Finally our estimated risk premia fluctuate between -40 and 110 basis points, with average levels between 30 and 65 basis points (depending on maturity)