Monetary Policy and Inflation Compensation

20 Pages Posted: 27 Jan 2020

See all articles by Vasilis Dedes

Vasilis Dedes

BlackRock, Inc

Xingyu Zhu

Stockholm School of Economics

Date Written: October 24, 2018

Abstract

We use two market-based measures of inflation compensation to explore the transmission mechanism of monetary policy to inflation markets. New information about the Fed's monetary policy stance becomes available on the days of meetings of the Federal Open Market Committee (FOMC) and is reflected in asset prices. We measure the sensitivity of inflation compensation measures to changes in monetary policy and compare its magnitudes across different maturity horizons, and across conventional and unconventional monetary policy regimes. Our analysis reveals that risk premia embedded in inflation compensation are horizon and monetary policy regime dependent.

Keywords: monetary policy, inflation compensation, zero bound, quantitative easing, term structure

JEL Classification: E31, E43, E52, G12

Suggested Citation

Dedes, Vasilis and Zhu, Xingyu, Monetary Policy and Inflation Compensation (October 24, 2018). Available at SSRN: https://ssrn.com/abstract=3512903 or http://dx.doi.org/10.2139/ssrn.3512903

Vasilis Dedes (Contact Author)

BlackRock, Inc

London
United Kingdom

Xingyu Zhu

Stockholm School of Economics

Stockholm
Sweden

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