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

Author

Listed:
  • Efthymios Argyropoulos

    (Athens University of Economics & Business)

  • Elias Tzavalis

    (Athens University of Economics and Business)

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.

Suggested Citation

  • Efthymios Argyropoulos & Elias Tzavalis, 2013. "Retrieving inaation expectations and risk premia e§ects from theterm structure of interest rates," Working Papers 201322, Athens University Of Economics and Business, Department of Economics.
    • Handle: RePEc:aeb:wpaper:2013022:y:2013
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    File URL: https://www.dept.aueb.gr/sites/default/files/econ/dokimia/AllDP222013.pdf
    File Function: Released version, 2013
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    More about this item

    Keywords

    Term Structure of Interest Rates; Gaussian Dynamic Term Structure Model; Principal;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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