UK term structure decompositions at the zero lower bound

Andrea Carriero, Sarah Mouabbi and E. Vangelista

Working papers from Banque de France

Abstract: This paper employs a Zero Lower Bound (ZLB) consistent shadow-rate model to decompose UK nominal yields into expectation and term premia components. Compared to a standard affine term structure model, it performs relatively better in a ZLB setting and effectively captures the countercyclical nature of term premia. The ZLB model is then exploited to estimate inflation expectations and risk premia. This entails jointly pricing and decomposing nominal and real UK yields. We find evidence that medium- and long-term inflation expectations are contained within narrower bounds since the early 1990s, suggesting monetary policy credibility improved after the introduction of inflation targeting.

Keywords: No-arbitrage; term structure; zero-lower bound; risk premia; inflation expectations. (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 E58 G12 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2016
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: UK term structure decompositions at the zero lower bound (2018)
Working Paper: UK Term Structure Decompositions at the Zero Lower Bound (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:589

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