American Economic Review Vol. 104 No. 1 2014

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

Michael D. Bauer¹; Glenn D. Rudebusch¹; Jing Cynthia Wu²

¹ Federal Reserve Bank of San Francisco, 101 Market Street MS 1130, San Francisco, CA 94105 (e-mail: ) · ² University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637 (e-mail: )

Abstract

Term premia implied by maximum likelihood estimates of affine term structure models are misleading because of small-sample bias. We show that accounting for this bias alters the conclusions about the trend, cycle, and macroeconomic determinants of the term premia estimated in Wright (2011). His term premium estimates are essentially acyclical, and often just parallel the secular trend in longterm interest rates. In contrast, bias-corrected term premia show pronounced countercyclical behavior, consistent with theoretical and empirical arguments about movements in risk premia.

DOI

10.1257/aer.104.1.323

Volume

104

Issue

1

Pages

323-337

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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