New model predicts bond yields and inflation trends with precision.
The article presents a model that looks at how interest rates are influenced by factors like real interest rates, expected inflation, and volatility. By analyzing data on inflation swap rates, the model estimates bond yields and inflation forecasts. The study shows that volatility affects risk premia and the variability of real interest rates and expected inflation, but has minimal impact on nominal yields. Overall, long-term real and inflation risk premia remain relatively stable over time.