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A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt

Jens Christensen () and Glenn Rudebusch ()

No 2017-7, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Some have argued that Treasury yields have been pushed down by lower longer-run expectations of the safe, short-term real interest rate?that is, by a drop in the so-called equilibrium or natural rate of interest. We examine this possibility using an arbitrage-free dynamic term structure model estimated directly on prices of individual inflation-indexed bonds with adjustments for real term and liquidity risk premiums. We find that a lower expected short real rate has accounted for about 2 percentage points of the general downtrend in yields over the past two decades and that this situation seems unlikely to reverse quickly.

JEL-codes: N20 G21 E44 G01 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2017-03-22, Revised 2017-03-22
New Economics Papers: this item is included in nep-cba
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Journal Article: A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2017-07

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DOI: 10.24148/wp2017-07

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