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Uncovering the US term premium: An alternative route

Luis Gil-Alana () and Antonio Moreno ()

Journal of Banking & Finance, 2012, vol. 36, issue 4, 1181-1193

Abstract: The estimates of the US term premium crucially depend upon the ex-ante decision on whether the short-term rate is either an I(0) or an I(1) process. In this paper we estimate a fractionally integrated (I(d)) model which simultaneously determines both the order of integration of the short-term rate and the associated term premium. We show that the term premium experienced a sharp increase from essentially zero in mid-2007 to almost 3% in 2009. We also show that unemployment and term premium dynamics exhibit a very significant positive co-movement.

Keywords: Interest rates; Term premium; Fractional integration (search for similar items in EconPapers)
JEL-codes: E4 G1 C5 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Uncovering the U.S. Term Premium: An Alternative Route (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:4:p:1181-1193

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