Filippo Natoli
- 10 April 2018
- WORKING PAPER SERIES - No. 2141Details
- Abstract
- We propose a consumption-based model that allows for an inverted term structure of real and nominal risk-free rates. In our framework the agent is subject to time-varying macroeconomic risk and interest rates at all maturities depend on her risk perception which shape saving propensities over time. In bad times, when risk is perceived to be higher in the short- than the long-term, the agent would prefer to hedge against low realizations of consumption in the near future by investing in long-term securities. This determines, in equilibrium, the inversion of the yield curve. Pricing time-varying consumption volatility risk is essential for obtaining the inversion of the real curve and allows to price the average level and slope of the nominal one.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 25 January 2017
- WORKING PAPER SERIES - No. 1997Details
- Abstract
- We analyze the degree of anchoring of inflation expectations in the euro area during the post-crisis period, with a focus on the time span from 2014 onwards when long-term beliefs have substantially drifted away from the policy target. Using a new estimation technique, we look at tail co-movements between short- and long-term distributions of inflation expectations, estimated from daily quotes of inflation derivatives. We find that, during 2014, average correlations between short- and long-term inflation expectations rose sharply; moreover, negative tail events impacting short-term beliefs have been increasingly channeled to long-term views, triggering both downward revisions in expectations and upward changes in uncertainty. Overall, our results signal a risk of downside de-anchoring of long-term inflation expectations.
- JEL Code
- C14 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Semiparametric and Nonparametric Methods: General
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing - Network
- Task force on low inflation (LIFT)
- 25 January 2017
- WORKING PAPER SERIES - No. 1996Details
- Abstract
- We compare the degree of anchoring of inflation expectations in the euro area, the United States and the United Kingdom, focusing on the post-crisis period. First of all, we estimate a set of measures of average and tail correlation using inflation swaps and options, following Natoli and Sigalotti (2016). To quantify the degree of anchoring, we also propose a new indicator based on the results of a logistic regression, measuring the odds that strong negative shocks to short-term expectations are channelled to large declines in long-term expectations. The results reveal, for the euro area, an increase in the de-anchoring risk during the last quarter of 2014; while showing a significant reduction after the peak, our de-anchoring indicator remains high and volatile in 2015 and 2016. Expectations in the US and UK are instead found to be firmly anchored.
- JEL Code
- C14 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Semiparametric and Nonparametric Methods: General
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing - Network
- Task force on low inflation (LIFT)