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Macro-expectations, aggregate uncertainty, and expected term premia

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  • Dick, Christian D.
  • Schmeling, Maik
  • Schrimpf, Andreas

Abstract

Based on expectations data from the Survey of Professional Forecasters (SPF), we construct a real-time proxy for expected term premium changes of US long-term Treasury bonds. We then investigate the economic drivers of these subjective term premium expectations at the level of individual forecasters. Our results indicate that forecasters' term premium expectations are driven by expected macroeconomic conditions as well as the uncertainty of market participants about future output and inflation. An aggregate measure of forecasters' term premium expectations has predictive power for actual bond excess returns over horizons of up to one year.

Suggested Citation

  • Dick, Christian D. & Schmeling, Maik & Schrimpf, Andreas, 2013. "Macro-expectations, aggregate uncertainty, and expected term premia," European Economic Review, Elsevier, vol. 58(C), pages 58-80.
  • Handle: RePEc:eee:eecrev:v:58:y:2013:i:c:p:58-80
    DOI: 10.1016/j.euroecorev.2012.11.005
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    Cited by:

    1. Cimadomo, Jacopo & Claeys, Peter & Poplawski-Ribeiro, Marcos, 2016. "How do experts forecast sovereign spreads?," European Economic Review, Elsevier, vol. 87(C), pages 216-235.
    2. Alves, Paulo & Silva, Paulo, 2017. "Abnormal Retained Earnings Around The World," MPRA Paper 80243, University Library of Munich, Germany.
    3. repec:eee:jebusi:v:93:y:2017:i:c:p:46-61 is not listed on IDEAS
    4. Chuliá, Helena & Guillén, Montserrat & Uribe, Jorge M., 2017. "Measuring uncertainty in the stock market," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 18-33.
    5. Dániel Horváth & Péter Kálmán & Zalán Kocsis & Imre Ligeti, 2014. "What factors influence the yield curve?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 9(1), pages 28-39, March.
    6. Ewan Rankin & Muhummed Shah Idil, 2014. "A Century of Stock-Bond Correlations," RBA Bulletin, Reserve Bank of Australia, pages 67-74, September.
    7. Hartmann, Matthias & Conrad, Christian, 2014. "Cross sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100477, Verein für Socialpolitik / German Economic Association.
    8. De Rezende, Rafael B., 2015. "Risks in macroeconomic fundamentals and excess bond returns predictability," Working Paper Series 295, Sveriges Riksbank (Central Bank of Sweden).
    9. Claeys, Peter & Cimadomo, Jacopo & Poplawski Ribeiro, Marcos, 2014. "How do financial institutions forecast sovereign spreads?," Working Paper Series 1750, European Central Bank.
    10. van Holle, Frederiek, 2017. "Essays in empirical finance and monetary policy," Other publications TiSEM 30d11a4b-7bc9-4c81-ad24-5, Tilburg University, School of Economics and Management.
    11. Guerello, Chiara, 2016. "The effect of investors’ confidence on monetary policy transmission mechanism," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 248-266.

    More about this item

    Keywords

    Bond risk premia; Expectations hypothesis; Time-varying risk premia; Term premia; Macroeconomic uncertainty; Forecast dispersion;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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