139
Table 7: In-Sample Variance decomposition of TIPS Yields and TIPS BEI (Percent)
Table 7reports the in-sample variance decompositions of TIPS yields into real yields,indexation lag effects, and
TIPS liquidity premiums, and of nominal yields into expected inflation, inflation risk premiums,indexation lag
effects, and the negative of TIPSliquidity premiums,all based on Model LII estimates. The variance decompositions
are calculated as the in-sample covariance between TIPS yields (BEI) and the individual components,divided by the
in-sample variance of TIPS yields (BEI). Standard errors calculated using the delta method are reported in
parentheses.
TIPS yield
TIPS BEI
Maturity real yield indexation lag liq prem
infexp infrisk prem
indexation lag liq prem
5-year
83.1
0.6
16.3
38.5
7.0
5.9
48.6
(5.5)
(1.2)
(5.4)
(2.4)
(6.8)
(3.3)
(6.3)
7-year
83.2
0.3
16.5
44.5
8.5
4.6
42.4
(5.6)
(1.2)
(5.5)
(2.8)
(9.0)
(2.8)
(7.6)
10-year
84.0
0.1
15.9
49.6
11.1
3.5
35.9
(5.7)
(1.2)
(5.6)
(5.2)
(11.8)
(2.5)
(9.4)
Table 8: Estimates of Inflation Risk Premiums and Expected Inflation
HPR estimates are obtained from the website of the Federal Reserve Bankof Cleveland. GH generate a range of
estimates depending on the proxy used forexpected inflation; the table reports the results using past average 5- and
10-year realized inflation as proxies forfuture 5- and 10-yearexpected inflation.
ABW
BJ
CM
HPR
ABC
DKW
AACM
GH
FLL
Inf. Risk Prem. (basis points)
5-year
114
42
NA
17
16
19
17
36
4:5
10-year
NA
70
67
45
24
29
10
12
2:8
Expected Inflation(percent)
5-year
3:94
NA
NA
3:13
2:88
2.73
2:56
2:51
2:36
10-year
NA
NA
4:05
3:10
2:88
2.77
2:78
2:55
2:58
Data Used
TIPS
Y
Y
Y
Y
Inflation swaps
Y
Y
Survey inflation forecasts
Y
Y
Y
Sample Period
Start Year
1952
1960 1971 1982 1985
1990
1999
2000 2004
End Year
2004
2000 2008 2010 2011
2013
2013
2008 2014
60
