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

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Listed:
  • 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.

Suggested Citation

  • Luis Gil-Alana & Antonio Moreno, 2007. "Uncovering the U.S. Term Premium: An Alternative Route," Faculty Working Papers 12/07, School of Economics and Business Administration, University of Navarra.
    • Handle: RePEc:una:unccee:wp1207
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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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