Risk Premia at the ZLB: a macroeconomic interpretation
Phuong Ngo and
Francois Gourio ()
No 1585, 2016 Meeting Papers from Society for Economic Dynamics
Long-term interest rates have fallen to historically low levels since the Great Recession started. One potential contributor are low premia for inflÂ‡ation and interest rate risk. We show how a fairly standard New Keynesian macroeconomic model generates lower inflÂ‡ation and interest rate risk premia when the economy becomes close to the zero lower bound (ZLB). In particular, the inÂ‡flation risk premia switches from positive to negative. We provide evidence consistent with this mechanism: since 2009, investors seem to view inflÂ‡ation as more positively correlated with the price of risky assets.
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Working Paper: Risk Premia at the ZLB: A Macroeconomic Interpretation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1585
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