The purpose of this paper is to study the compensation for in ation risks priced in sovereign bond yields. And we do so by modelling the time-varying dynamics of asset returns and inflation, and then estimating the cost of hedging in ation risks from the perspective of a well diversified...

We study fiscal behaviour and the sovereign yield curve in the U.S. and Germany in the period 1981:I-2009:IV. The latent factors, level, slope and curvature, obtained with the Kalman filter, are used in a VAR with macro and fiscal variables, controlling for financial stress conditions. In the...