Expectations, uncertainty and risk premium

Rexford Abaidoo

Journal of Financial Economic Policy, 2017, vol. 9, issue 3, 338-352

Abstract: Purpose - This study aims to examine short- and long-run effects of specific macroeconomic conditions on risk premium estimates on lending. Design/methodology/approach - Empirical estimates are based on error correction and autoregressive distributed lag models. Findings - The results suggest that, in the short run, inflation expectations, recession expectations and actual inflationary conditions tend to have a significant impact on risk premium estimates; in the long run, however, only inflation expectations and recession expectations are significant in risk premium estimates on lending. Originality/value - This study examines how specific conditions of uncertainty and expectations influence variability in risk premium estimates on lending in the US economy.

Keywords: Cycles; Behavioral economics; Business fluctuations; Macroeconomic uncertainty; Risk premium; Criteria for decision-making under risk and uncertainty; Determination of interest rates; Econometric and statistical methods; Inflation expectation; Recession expectation; B22; C22; C3; D84 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-12-2016-0096

DOI: 10.1108/JFEP-12-2016-0096

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