Macro Expectations, Aggregate Uncertainty, and Expected Term Premia

Christian Dick, Maik Schmeling and Andreas Schrimpf

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Based on individual expectations from the Survey of Professional Forecasters, we construct a realtime proxy for expected term premium changes on long-term bonds. We empirically investigate the relation of these bond term premium expectations with expectations about key macroeconomic variables as well as aggregate macroeconomic uncertainty at the level of individual forecasters. We find that expected term premia are (i) time-varying and reasonably persistent, (ii) strongly related to expectations about future output growth, and (iii) positively affected by uncertainty about future output growth and in ation rates. Expectations about real macroeconomic variables seem to matter more than expectations about nominal factors. Additional findings on term structure factors suggest that the level and slope factor capture information related to uncertainty about real and nominal macroeconomic prospects, and that curvature is related to subjective term premium expectations themselves. Finally, an aggregate measure of forecasters' term premium expectations has predictive power for bond excess returns over horizons of up to one year.

Keywords: Bond Yields; Expectations Hypothesis; Time-varying Risk Premia; Term Premia; Aggregate Uncertainty (search for similar items in EconPapers)
JEL-codes: E43 E44 G12 (search for similar items in EconPapers)
Pages: 46
Date: 2010-08-27
New Economics Papers: this item is included in nep-cba, nep-mac and nep-upt
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Related works:
Journal Article: Macro-expectations, aggregate uncertainty, and expected term premia (2013)
Working Paper: Macro expectations, aggregate uncertainty, and expected term premia (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-49

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