Surprises in the Term Structure

37 Pages Posted: 30 Aug 2012

Date Written: August 24, 2012

Abstract

The no-arbitrage affine Gaussian term structure model is used for analyzing the impact of macroeconomic surprises on the nominal and the real term structure, in the euro area and in the United States. We find that nominal rates are impacted by surprises on economic growth, labour market and economic outlook in the United States and mostly by surprises on inflation in the euro area. In the United States forward inflation risk premia become sizable around the start of the late-2000s financial crisis and considerably increase just before the adoption of the first unconventional measures of monetary policy in March 2009. In contrast, in the euro area forward inflation risk premia are unchanged even after the adoption of the unconventional monetary policy measures, in October 2008 and in May 2010. In both areas expected long-term inflation expectations have been well anchored over the past years.

Keywords: inflation risk premium, affine term structure, Kalman filter, macroeconomic and monetary surprises

JEL Classification: C02, G10, G12

Suggested Citation

Pericoli, Marcello, Surprises in the Term Structure (August 24, 2012). Available at SSRN: https://ssrn.com/abstract=2135434 or http://dx.doi.org/10.2139/ssrn.2135434

Marcello Pericoli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

HOME PAGE: http://www.bancaditalia.it

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