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Uncovering the U.S. Term Premium: An Alternative Route

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Author Info
Luis Gil-Alana () (University of Navarra)
Antonio Moreno () (University of Navarra)
Abstract

The estimates of the U.S. term premium crucially depend upon the ex-ante decision on whether the short-term rate is either an I(0) or an I(1) process. In this paper we estimate a fractionally integrated (I(d)) model which simultaneously determines both the order of integration of the short-term rate and the associated term premium. We show that the term premium was essentially zero at the end of 2006, after having experienced a steady decline of around 2.5 percentage points since the beginning of 2004.

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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number wp.

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  5. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June. [Downloadable!] (restricted)
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  9. Ray, Bonnie K., 1993. "Long-range forecasting of IBM product revenues using a seasonal fractionally differenced ARMA model," International Journal of Forecasting, Elsevier, vol. 9(2), pages 255-269, August. [Downloadable!] (restricted)
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