Inflation risk premia and risk-adjusted expectations of inflation

The rate of swap contracts linked to inflation can be a poor measure of inflation expectations, as it incorporates time-varying risk premia. By following an established approach, we estimate inflation risk premia and construct risk-adjusted measures of inflation expectations for the US and the euro area. Our results show that premia are negatively related to the business cycle and the volatility of the stock market, increase with the maturity of the contract and are on average lower in the US than in the euro area. (C) 2018 Elsevier B.V. All rights reserved.