Macroeconomic Surprises and the Inflation Compensation Curve in the Euro Area

42 Pages Posted: 21 Sep 2010

Date Written: July 1, 2008

Abstract

Using daily data stemming from inflation-indexed markets, we analyse the effects of numerous macroeconomic surprises on inflation compensation data - the sum of inflation expectations, risk and liquidity premia - in the euro area between 2 January 2004 and 31 December 2007. Our results suggest that when gauging short and medium-term inflation compensations, market operators are sensitive to surprises related to real activity and prices. Interestingly, oil futures prices tend to impact at some point on the short- and medium-ends of the inflation compensation curve. Notwithstanding, long-term inflation compensations remain generally unresponsive to macroeconomic surprises, attesting the high ECB's credibility.

Keywords: Inflation Compensation, Macroeconomic Surprise, Eurosystem

JEL Classification: E31, E44, E58

Suggested Citation

Coffinet, Jerome and Frappa, Sébastien, Macroeconomic Surprises and the Inflation Compensation Curve in the Euro Area (July 1, 2008). Banque de France Working Paper No. 220, Available at SSRN: https://ssrn.com/abstract=1679671 or http://dx.doi.org/10.2139/ssrn.1679671

Jerome Coffinet (Contact Author)

Banque de France ( email )

Paris
France

Sébastien Frappa

Banque de France ( email )

Paris
France

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