Download or read book The Information Content of the Term Structure of Interest Rates About Future Inflation an Illustration of the Importance of Accounting for a Time Varying Real Interest Rate and Inflation Risk Premium written by Christian Mose Nielsen and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: During the past 15 years a large number of studies have used the approach suggested by Mishkin (Quarterly Journal of Economics, Vol. 105 (1990), No. 3, pp. 815-828; Journal of Monetary Economics, Vol. 25 (1990), No. 1, pp. 77-95) to examine the information content of the term structure of interest rates about future inflation. The empirical results of these studies, however, are very mixed and often not supportive of the Mishkin model. In addition, many results indicate that the term structure of interest rates only contains limited information about future inflation and that the relationship between the term structure of interest rates and future inflation may not be stable over time. In this paper an extension of the Mishkin model allowing for time-varying expected real interest rates and inflation risk premia is suggested and tested using monthly UK data from 1983:1 to 2004:10. The empirical results show that while the standard Mishkin model indicates that the term structure of interest rates contains limited information about future inflation, the extended Mishkin model indicates the contrary, i.e. the term structure of interest rates contains much information about future inflation when account is taken of time-varying expected real interest rates and inflation risk premia - especially when the long end of the term structure of interest rates is considered. Furthermore, the results indicate a potential structural break in the relationship between the term structure of interest rates and future inflation around the time the Bank of England started targeting inflation rates.

Download or read book The Information Content of the Term Structure of Interest Rates written by Frank Browne and published by [Paris, France] : OECD, Department of Economics and Statistics. This book was released on 1989 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Term Structure of Real Rates and Expected Inflation written by Geert Bekaert and published by . This book was released on 2011 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Changes in nominal interest rates must be due to either movements in real interest rates or expected inflation, or both. We develop a term structure model with regime switches, time-varying prices of risk and inflation to identify these components of the nominal yield curve. We find that the unconditional real rate curve is fairly flat at 1.44%, but slightly humped. In one regime, the real term structure is steeply downward sloping. Real rates (nominal rates) are pro-cyclical (counter-cyclical) and inflation is negatively correlated with real rates. An inflation risk premium that increases with the horizon fully accounts for the generally upward sloping nominal term structure. We find that expected inflation drives about 80% of the variation of nominal yields at both short and long maturities, but during normal times, all of the variation of nominal term spreads is due to expected inflation and inflation risk.

Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Macroeconomic Approach to the Term Premium written by Emanuel Kopp and published by International Monetary Fund. This book was released on 2018-06-15 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, term premia have been very low and sometimes even negative. Now, with the United States economy growing above potential, inflationary pressures are on the rise. Term premia are very sensitive to the expected future path of growth, inflation, and monetary policy, and an inflation surprise could require monetary policy to tighten faster than anticipated, inducing to a sudden decompression of term and other risk premia, thus tightening financial conditions. This paper proposes a semi-structural dynamic term structure model augmented with macroeconomic factors to include cyclical dynamics with a focus on medium- to long-run forecasts. Our results clearly show that a macroeconomic approach is warranted: While term premium estimates are in line with those from other studies, we provide (i) plausible, stable estimates of expected long-term interest rates and (ii) forecasts of short- and long-term interest rates as well as cyclical macroeconomic variables that are stunningly close to those generated from large-scale macroeconomic models.

Download or read book Essays on the Term Structure of Interest Rates written by Nisha Aroskar and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This dissertation contributes to the study of the term structure of interest rates by addressing some of the gaps in this literature. The term structure is an important channel of monetary transmission. It also contains information about the intertemporal choices made by economic agents. The expectations Hypothesis is the primary explanation in economics that links short term interest rates to long term interest rates. In the first essay I extend the literature by examining the expectations hypothesis in the newly developed financial markets. I find that the expectations theory is not rejected in these markets. This evidence is in sharp contrast to the evidence earlier presented for industrialized countries. Further, contrary to the simple expectations theory, the term premium has high persistence, which is reflected in significantly autoregressive error terms. The evidence also supports the longstanding suggestion that the term premium could be related to the liquidity in the economy. The next essay investigates the forecasting ability of the term spread for future output growth. There appears to be a sharp decline in the predictive power of the term spread in countries that have adopted monetary policy with a stronger response to inflation. To explore the underlying economic reasons for these findings, I explicitly model the information content of the term spread for future output growth based on a structural model. Model calibrations suggest that the forecasting ability of the term spread changes with a change in the persistence and the variance of the underlying economic shocks and in the monetary policy preferences. The last essay focuses on the term structure as a link between short term and long term interest rates in macroeconomic models. I integrate the New Keynesian model and the model of the term structure based on the Intertemporal Consumption Asset Pricing Model. This is a more plausible description of the economy compared to the earlier models. In this model, output responds to an interest rate that includes a time varying term premium which, in turn is associated with economic agents expectations about the future economic variables. Empirical results provide confidence for future research in this direction.

Download or read book Essays on the Term Structure of Interest Rates Monetary Policy and Business Cycle written by Tong-hŏn Kim and published by . This book was released on 2000 with total page 166 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Term Structure of Interest Rates and Time varying Risk Premium written by Se-jin Kim and published by . This book was released on 1988 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Inflation Expectations written by Peter J. N. Sinclair and published by Routledge. This book was released on 2009-12-16 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Download or read book The Term Structure of Interest Rates written by David Meiselman and published by . This book was released on 1962 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Real Interest Rates Inflation and the Term Structure of Interest Rates written by Li-Hsueh Chen and published by . This book was released on 1998 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Inflation Consumption and Time varying Risk Premiums in the Term Structure of Nominal Interest Rates written by Chung-Hun Hong and published by . This book was released on 1993 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Term Structure of Interest Rates and Inflation Forecast Targeting written by Sylvester C. W. Eijffinger and published by . This book was released on 2000 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.

Download or read book Inflation Endogenous Market Segmentation and the Term Structure of Interest Rates written by Casper G. de Vries and published by . This book was released on 2015 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: The term structure of interest rates does not adhere to the expectations hypothesis, possibly due to a risk premium. We consider the implications of a risk premium that arises from endogenous market segmentation driven by variable inflation rates. In the absence of autocorrelation in inflation, the risk premium is constant. If inflation is correlated, however, the risk premium becomes time varying and we can rationalize the failure of the expectations hypothesis. Indirect empirical tests of the model's implications are provided.

Download or read book The Inflation Risk Premium in the Term Structure of Interest Rates written by Peter Hördahl and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: A dynamic term structure model based on an explicit structural macroeconomic framework is used to estimate inflation risk premia in the United States and the euro area. On average over the past decade, inflation risk premia have been relatively small but positive. They have exhibited an increasing pattern with respect to maturity for the euro area and a flatter one for the United States. Furthermore, the estimates imply that risk premia vary over time, mainly in response to fluctuations in economic growth and inflation.

Download or read book What Does the Term Structure Tell Us About Future Inflation written by Frederic S. Mishkin and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines empirically what the term structure of interest rates tells us about future inflation. The evidence indicates that the information in the term structure about the future path of inflation is quite different at the shortest end of the term structure (maturities six months or less) than it is for maturities of nine to twelve months. For maturities of six months or less, in all the sample periods examined -- February 1964 to December 1986, 1964 to October 1979, November 1979 to October 1982, November 1982 to December 1986 -- the term structure provides almost no information about the future path of inflation. On the other hand at this end of the term structure, the results do indicate that the term structure of nominal interest rates contain a great deal of information about the term structure of real interest rates. This finding is quite important because it suggests that researchers can examine observable data on the shortest end of the nominal term structure to provide them with information about the behavior of the real term structure. For maturities of nine and twelve months, the term structure does appear to contain information about the future path of inflation in the full sample period and in the sub-periods before October 1982. At these longer maturities, however, there does not appear to be much information in the nominal term structure about the term structure of real interest rates. The evidence in this paper suggests that some caution should be exercised in using the term structure of interest rates as a guide for assessing inflationary pressures in the economy, as is currently under consideration by the Federal Reserve. Although there is apparently significant information in the term structure about the future path of inflation for maturities greater than six months, there is no information about the future path of inflation that can be obtained from the shorter end of the term structure.