Retrieving inaation expectations and risk premia e§ects from theterm structure of interest rates

Efthymios Argyropoulos Efthymios Argyropoulos and Elias Tzavalis
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Efthymios Argyropoulos Efthymios Argyropoulos: Athens University of Economics & Business

No 201322, Working Papers from Athens University Of Economics and Business, Department of Economics

Abstract: This paper suggests an empirically attractive Gaussian dynamic term structure model to retrieve estimates of real interest rates and inaation expectations from the nominal term structure of interest rates which are net of inaation risk premium e§ects. The paper shows that this model is consistent with the data and that time-variation of inaation risk premium and real interest rates can explain the puzzlingbehavior of the spread between long and short-term nominal interest rates to forecast changes in inaationrates, especially over short-term horizons.

Keywords: Term Structure of Interest Rates; Gaussian Dynamic Term Structure Model; Principal (search for similar items in EconPapers)
JEL-codes: E21 E27 E43 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:aeb:wpaper:2013022:y:2013

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