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The Term Structure of Real Rates and Expected Inflation

Andrew Ang (), Geert Bekaert () and Min Wei

No 12930, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: C50 E31 E32 E43 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
Date: 2007-02
Note: AP ME
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Published as Andrew Ang & Geert Bekaert, 2004. "The term structure of real rates and expected inflation," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
Published as Andrew Ang & Geert Bekaert & Min Wei, 2008. "The Term Structure of Real Rates and Expected Inflation," Journal of Finance, American Finance Association, vol. 63(2), pages 797-849, 04.

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Journal Article: The Term Structure of Real Rates and Expected Inflation (2008) Downloads
Journal Article: The term structure of real rates and expected inflation (2004) Downloads
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