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Estimates of time-varying term premia for New Zealand and Australia

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Author Info
Michael Gordon (Reserve Bank of New Zealand)
Abstract

Forward rates in the money market are systematically higher than realised spot rates, reflecting an unobservable term premium. This paper uses a Kalman filter specification to produce time-varying estimates of the term premia in New Zealand and Australia. Three time series specifications are used to examine the properties of the premia, such as the average size, volatility, and the degree of mean reversion.

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File URL: http://www.rbnz.govt.nz/research/discusspapers/dp03_06.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2003/06.

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Length: 33p
Date of creation: Aug 2003
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Handle: RePEc:nzb:nzbdps:2003/06

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Find related papers by JEL classification:
C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates

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  1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  2. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2002. "Market-based measures of monetary policy expectations," Finance and Economics Discussion Series 2002-40, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  3. Tzavalis, Elias & Wickens, Michael R, 1997. "Explaining the Failures of the Term Spread Models of the Rational Expectations Hypothesis of the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 364-80, August.
  4. Geert Bekaert & Robert J. Hodrick & David A. Marshall, 1997. ""Peso problem" explanations for term structure anomalies," Working Paper Series, Issues in Financial Regulation WP-97-7, Federal Reserve Bank of Chicago.
    Other versions:
  5. Bob Rankin, 1992. "The Cash Market in Australia," RBA Research Discussion Papers rdp9214, Reserve Bank of Australia. [Downloadable!]
  6. Olivier Basdevant, 2003. "On applications of state-space modelling in macroeconomics," Reserve Bank of New Zealand Discussion Paper Series DP2003/02, Reserve Bank of New Zealand. [Downloadable!]
  7. David Archer & Andy Brookes & Michael Reddell, 1999. "A cash rate system for implementing monetary policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March. [Downloadable!]
  8. repec:fip:fedreq:y:1990:i:sep/oct:p:3-26:n:v.76no.5 is not listed on IDEAS
  9. Leo Krippner, 2002. "Extracting expectations of New Zealand's Official Cash Rate from the bank-risk yield curve," Reserve Bank of New Zealand Discussion Paper Series DP2002/01, Reserve Bank of New Zealand. [Downloadable!]
  10. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March. [Downloadable!] (restricted)
  11. Toni Gravelle & James C. Morley, 2005. "A Kalman filter approach to characterizing the Canadian term structure of interest rates," Applied Financial Economics, Taylor and Francis Journals, vol. 15(10), pages 691-705, June. [Downloadable!] (restricted)
  12. Julie Huxford & Michael Reddell, 1996. "Implementing monetary policy in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 59, December. [Downloadable!]
  13. Leo Krippner & Michael Gordon, 2001. "Market expectations of the Official Cash Rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, June. [Downloadable!]
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