The Term Structure of Euro Area Break-Even Inflation Rates: The Impact of Seasonality

43 Pages Posted: 5 Dec 2007

See all articles by Jacob Ejsing

Jacob Ejsing

European Central Bank (ECB)

Juan A. Garcia

European Central Bank (ECB)

Thomas Werner

European Central Bank (ECB)

Date Written: November 2007

Abstract

This paper provides a toolkit for extracting accurate information about inflation expectations using inflation-linked bonds. First, we show how to estimate term structures of zero-coupon real rates and break-even inflation rates (BEIRs) in the euro area. This improves the analysis of developments in inflation expectations by providing constant maturity measures. Second, we show that seasonality in consumer prices introduces misleading and quantitatively important time-varying distortions in the calculated BEIRs. We explain how to correct for this in the estimation of the term structure, and thus provide a unified framework for extracting constant maturity BEIRs corrected for seasonality.

Keywords: term structure, break-even inflation rates, inflation-linked bonds, inflation seasonality

JEL Classification: E31, E43, G12

Suggested Citation

Ejsing, Jacob and Garcia, Juan Angel and Werner, Thomas, The Term Structure of Euro Area Break-Even Inflation Rates: The Impact of Seasonality (November 2007). ECB Working Paper No. 830. Available at SSRN: https://ssrn.com/abstract=1028713

Jacob Ejsing

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
00496913445312 (Phone)

Juan Angel Garcia

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Thomas Werner (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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