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The bond market term premium: what is it, and how can we measure it?

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  • Don H Kim
  • Athanasios Orphanides

Abstract

We review the concept of the term premium, examine alternative methods used to estimate it and discuss some of the challenges encountered in such efforts. We also explain how survey forecasts could be useful for providing an informal, model-free cross-check on simple regression-based forecasting models of term premia and for formal estimation of flexibly specified no-arbitrage models.

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Bibliographic Info

Article provided by Bank for International Settlements in its journal BIS Quarterly Review.

Volume (Year): (2007)
Issue (Month): (June)
Pages:

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Handle: RePEc:bis:bisqtr:0706e

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  1. Peter Hordahl & Oreste Tristani & David Vestin, 2004. "A joint econometric model of macroeconomic and term structure dynamics," Money Macro and Finance (MMF) Research Group Conference 2003 48, Money Macro and Finance Research Group.
  2. Qiang Dai & Kenneth J. Singleton, 2000. "Specification Analysis of Affine Term Structure Models," Journal of Finance, American Finance Association, vol. 55(5), pages 1943-1978, October.
  3. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, 02.
  4. Monika Piazzesi & Eric Swanson, 2004. "Futures Prices as Risk-adjusted Forecasts of Monetary Policy," NBER Working Papers 10547, National Bureau of Economic Research, Inc.
  5. Wayne E. Ferson & Sergei Sarkissian & Timothy T. Simin, 2003. "Spurious Regressions in Financial Economics?," Journal of Finance, American Finance Association, vol. 58(4), pages 1393-1414, 08.
  6. John H. Cochrane & Monika Piazzesi, 2005. "Bond Risk Premia," American Economic Review, American Economic Association, vol. 95(1), pages 138-160, March.
  7. Sharon Kozicki & P.A. Tinsley, 1997. "Shifting endpoints in the term structure of interest rates," Research Working Paper 97-08, Federal Reserve Bank of Kansas City.
  8. Michael W. McCracken & Todd E. Clark, 2003. "The Predictive Content of the Output Gap for Inflation: Resolving In-Sample and Out-of-Sample Evidence," Computing in Economics and Finance 2003 183, Society for Computational Economics.
  9. Fama, Eugene F & Bliss, Robert R, 1987. "The Information in Long-Maturity Forward Rates," American Economic Review, American Economic Association, vol. 77(4), pages 680-92, September.
  10. Vincent Reinhart & Brian Sack, 2002. "The changing information content of market interest rates," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 340-357 Bank for International Settlements.
  11. Blaise Gadanecz & Richhild Moessner & Christian Upper, 2007. "Economic derivatives," BIS Quarterly Review, Bank for International Settlements, March.
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Cited by:
  1. Daniela Osterrieder, 2013. "Interest Rates with Long Memory: A Generalized Affine Term-Structure Model," CREATES Research Papers 2013-17, School of Economics and Management, University of Aarhus.
  2. Guimarães, Rodrigo, 2014. "Expectations, risk premia and information spanning in dynamic term structure model estimation," Bank of England working papers 489, Bank of England.
  3. Jardet, C. & Monfort, A. & Pegoraro, F., 2009. "No-arbitrage Near-Cointegrated VAR(p) Term Structure Models, Term Premia and GDP Growth," Working papers 234, Banque de France.
  4. Don H Kim, 2007. "Spanned stochastic volatility in bond markets: a reexamination of the relative pricing between bonds and bond options," BIS Working Papers 239, Bank for International Settlements.
  5. Don Kim, 2008. "Challenges in macro-finance modeling," Finance and Economics Discussion Series 2008-06, Board of Governors of the Federal Reserve System (U.S.).
  6. Jose Renato Haas Ornelas & Antonio Francisco de Almeida Silva Jr, 2014. "Testing the Liquidity Preference Hypothesis using Survey Forecasts," Working Papers Series 353, Central Bank of Brazil, Research Department.
  7. Don H. Kim, 2009. "Challenges in macro-finance modeling," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 519-544.

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