The Term Structure of Real Rates and Expected Inflation

Andrew Ang, Geert Bekaert and Min Wei

Journal of Finance, 2008, vol. 63, issue 2, 797-849

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 United States 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.

Date: 2008
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Citations: View citations in EconPapers (247)

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https://doi.org/10.1111/j.1540-6261.2008.01332.x

Related works:
Working Paper: The Term Structure of Real Rates and Expected Inflation (2007)
Journal Article: The term structure of real rates and expected inflation (2004)
Working Paper: The Term Structure of Real Rates and Expected Inflation (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:63:y:2008:i:2:p:797-849

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