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American Economic Review: Vol. 101 No. 4 (June 2011)

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Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset

Article Citation

Wright, Jonathan H. 2011. "Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset." American Economic Review, 101(4): 1514-34.

DOI: 10.1257/aer.101.4.1514

Abstract

This paper provides cross-country empirical evidence on term premia. I construct a panel of zero-coupon nominal government bond yields spanning ten industrialized countries and nearly two decades. I hence compute forward rates and use two different methods to decompose these forward rates into expected future short-term interest rates and term premiums. The first method uses an affine term structure model with macroeconomic variables as unspanned risk factors; the second method uses surveys. I find that term premiums declined internationally over the sample period, especially in countries that apparently reduced inflation uncertainty by making substantial changes in their monetary policy frameworks. (JEL E13, E43, E52, G12, H63)

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Authors

Wright, Jonathan H. (Johns Hopkins U)

JEL Classifications

E31: Price Level; Inflation; Deflation
E43: Interest Rates: Determination, Term Structure, and Effects
E52: Monetary Policy
G12: Asset Pricing; Trading volume; Bond Interest Rates
H63: National Debt; Debt Management; Sovereign Debt


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