Pricing Kernels, Inflation, and the Term Structure of Interest Rates

35 Pages Posted: 1 Nov 2007

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

Joseph G. Haubrich

Federal Reserve Bank of Cleveland

Date Written: September 2003

Abstract

The authors 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, the authors use the estimates to obtain a new perspective on how real and nominal influences interact to produce the observed term structure.

Keywords: inflation, term structure, asset pricing

Suggested Citation

Craig, Ben R. and Haubrich, Joseph G., Pricing Kernels, Inflation, and the Term Structure of Interest Rates (September 2003). FRB of Cleveland Working Paper No. 03-08, Available at SSRN: https://ssrn.com/abstract=1026287 or http://dx.doi.org/10.2139/ssrn.1026287

Ben R. Craig

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
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Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Joseph G. Haubrich (Contact Author)

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2802 (Phone)
216-579-3050 (Fax)

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