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Author: Efthymios Argyropoulos
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
This paper suggests an empirically attractive Gaussian dynamic term structure model to retrieve estimates of real interest rates and in፟lation expectations from the nominal term structure of interest rates which are net of in፟lation risk premium effects. The paper shows that this model is consistent with the data and that time-variation of inflፚtion risk premium and real interest rates can explain the puzzling behavior of the spread between long and short-term nominal interest rates to forecast changes in in፟lation rates, especially over short-term horizons. The estimates of in፟lation risk premium effects retrieved by the model tend to be negative and signiጿicant, which implies that investors in the bond market require less compensation for holding nominal bonds compared to in፟lation-indexed bonds. This is more evident during the recent fiijnancial crisis.
Author: Efthymios Argyropoulos
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
This paper suggests an empirically attractive Gaussian dynamic term structure model to retrieve estimates of real interest rates and in፟lation expectations from the nominal term structure of interest rates which are net of in፟lation risk premium effects. The paper shows that this model is consistent with the data and that time-variation of inflፚtion risk premium and real interest rates can explain the puzzling behavior of the spread between long and short-term nominal interest rates to forecast changes in in፟lation rates, especially over short-term horizons. The estimates of in፟lation risk premium effects retrieved by the model tend to be negative and signiጿicant, which implies that investors in the bond market require less compensation for holding nominal bonds compared to in፟lation-indexed bonds. This is more evident during the recent fiijnancial crisis.
Author: Peter Hördahl
Publisher:
ISBN:
Category : Banks and banking, Central
Languages : en
Pages : 56
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Book Description
"This paper estimates the size and dynamics of inflation risk premia in the euro area, based on a joint model of macroeconomic and term structure dynamics. Information from both nominal and index-linked yields is used in the empirical analysis. Our results indicate that term premia in the euro area yield curve reflect predominantly real risks, i.e. risks which affect the returns on both nominal and index-linked bonds. On average, inflation risk premia were negligible during the EMU period but occasionally subject to statistically significant fluctuations in 2004-2006. Movements in the raw break-even rate appear to have mostly reflected such variations in inflation risk premia, while long-term inflation expectations have remained remarkably anchored from 1999 to date." - - Abstract.
Author: Peter Hördahl
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
This paper estimates the size and dynamics of inflation risk premia in the euro area, based on a joint model of macroeconomic and term structure dynamics. Information from both nominal and index-linked yields is used in the empirical analysis. Our results indicate that term premia in the euro area yield curve reflect predominantly real risks, i.e. risks which affect the returns on both nominal and index-linked bonds. On average, inflation risk premia were negligible during the EMU period but occasionally subject to statistically signifcant fluctuations in 2004-2006. Movements in the raw break-even rate appear to have mostly reflected such variations in inflation risk premia, while long-term inflation expectations have remained remarkably anchored from 1999 to date.
Author: Michael Joyce
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
This paper analyses the nominal and real interest rate term structures in the United Kingdom over the fifteen-year period that the UK monetary authorities have pursued an explicit inflation target, using a four-factor essentially affine term structure model. The model imposes no-arbitrage restrictions across nominal and real yields, enabling us to decompose nominal forward rates into expected real short rates, expected inflation, real term premia and inflation risk premia. We find that inflation risk premia and longer-term inflation expectations fell significantly when the Bank of England was made operationally independent in 1997. The 'conundrum' of unusually low long-term real rates that began in 2004 is mainly attributed by the model to a fall in real term premia, though a significant part of the fall is left unexplained. The relative inability of the model to fit long real forwards during much of this recent period may reflect strong pension fund demand for index-linked bonds. Moreover, the model decompositions suggest that these special factors affecting the index-linked market may also partly account for the contemporaneous rise in longer-horizon inflation breakeven rates.
Author: Christian Mose Nielsen
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
During the past 15 years a large number of studies have used the approach suggested by Mishkin (Quarterly Journal of Economics, Vol. 105 (1990), No. 3, pp. 815-828; Journal of Monetary Economics, Vol. 25 (1990), No. 1, pp. 77-95) to examine the information content of the term structure of interest rates about future inflation. The empirical results of these studies, however, are very mixed and often not supportive of the Mishkin model. In addition, many results indicate that the term structure of interest rates only contains limited information about future inflation and that the relationship between the term structure of interest rates and future inflation may not be stable over time. In this paper an extension of the Mishkin model allowing for time-varying expected real interest rates and inflation risk premia is suggested and tested using monthly UK data from 1983:1 to 2004:10. The empirical results show that while the standard Mishkin model indicates that the term structure of interest rates contains limited information about future inflation, the extended Mishkin model indicates the contrary, i.e. the term structure of interest rates contains much information about future inflation when account is taken of time-varying expected real interest rates and inflation risk premia - especially when the long end of the term structure of interest rates is considered. Furthermore, the results indicate a potential structural break in the relationship between the term structure of interest rates and future inflation around the time the Bank of England started targeting inflation rates.
Author: Felix Geiger
Publisher: Springer Science & Business Media
ISBN: 3642215750
Category : Business & Economics
Languages : en
Pages : 320
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Book Description
The determinants of yield curve dynamics have been thoroughly discussed in finance models. However, little can be said about the macroeconomic factors behind the movements of short- and long-term interest rates as well as the risk compensation demanded by financial investors. By taking on a macro-finance perspective, the book’s approach explicitly acknowledges the close feedback between monetary policy, the macroeconomy and financial conditions. Both theoretical and empirical models are applied in order to get a profound understanding of the interlinkages between economic activity, the conduct of monetary policy and the underlying macroeconomic factors of bond price movements. Moreover, the book identifies a broad risk-taking channel of monetary transmission which allows a reassessment of the role of financial constraints; it enables policy makers to develop new guidelines for monetary policy and for financial supervision of how to cope with evolving financial imbalances.
Author: Andrew Ang
Publisher:
ISBN:
Category : Economic forecasting
Languages : en
Pages : 82
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Book Description
Changes in nominal interest rates must be due to either movements in real interest rates, expected inflation, or the inflation risk premium. We develop a term structure model with regime switches, time-varying prices of risk, and inflation to identify these components of the nominal yield curve. We find that the unconditional real rate curve in the U.S. is fairly flat around 1.3%. In one real rate regime, the real term structure is steeply downward sloping. An inflation risk premium that increases with maturity fully accounts for the generally upward sloping nominal term structure.
Author: Dennis Bams
Publisher:
ISBN:
Category : Interest rate risk
Languages : en
Pages : 44
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Book Description
Author: Frederic S. Mishkin
Publisher:
ISBN:
Category : Bank deposits
Languages : en
Pages : 54
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Book Description
This paper provides evidence on what the term structure (for maturities of twelve months or less) tells us about future inflation in ten OECD countries. The empirical results on the information in the term structure contrast with those that find that the level of interest rates help forecast the future level of inflation. Instead, they indicate that for the majority of the countries in the sample, the term structure does not contain a great deal of information about the future path of inflation. The results for France, the United Kingdom and Germany tell a different story, however. In these countries, the term structure contains a highly significant amount of information about future changes in inflation. The evidence in this paper suggests that central banks for most of the countries studied here should exercise some caution in using the term structure of interest rates as a guide for assessing inflationary pressures in the economy, as is currently under consideration in the U.S. central bank. Although there is significant information in the term structure about the future path of inflation for a few of the countries, this is not a result that is true in general. The empirical evidence does reveal, however, that for every country studied except the United Kingdom, there is a great deal of information in the term structure of nominal' interest rates about the term structure of real' interest rates. This finding is an extremely useful one because it suggests that for most countries researchers can examine observable data on the nominal term structure to provide them with information about the behavior of the real' term structure.
Author: Frank Browne
Publisher: [Paris, France] : OECD, Department of Economics and Statistics
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 40
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