Long Run Risks In The Term Structure Of Interest Rates: Estimation

Using Bayesian methods, this paper estimates a model in which persistent fluctuations in expected consumption growth, expected inflation, and their time-varying volatility determine asset price variation. The analysis of the U.S. nominal term structure data from 1953 to 2006 shows that agents dislike high uncertainty and demand compensation for volatility risks, the time variation of the term premium is driven by the compensation for fluctuating inflation volatility, and estimates of risk factors are broadly consistent with survey data evidence.

Provided by: Federal Reserve Bank of Kansas City Topic: Data Management Date Added: Oct 2010 Format: PDF

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