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Pricing kernels, inflation, and the term structure of interest rates

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  • Ben R. Craig
  • Joseph G. Haubrich

Abstract

We estimate a discrete-time multivariate pricing kernel for the term structure of interest rates, using both yields and inflation rates. This gives a separate estimate of the real kernel and the nominal kernel, taking into account a relatively sophisticated dynamical structure and mutual interaction between the real and nominal side of the economy. Along with obtaining an estimate of the real term structure, we use the estimates to obtain a new perspective on how real and nominal influences interact to produce the observed term structure.

Suggested Citation

  • Ben R. Craig & Joseph G. Haubrich, 2003. "Pricing kernels, inflation, and the term structure of interest rates," Working Papers (Old Series) 0308, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0308
    DOI: 10.26509/frbc-wp-200308
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    References listed on IDEAS

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    Keywords

    Inflation (Finance); Interest rates;

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