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The effects of different inflation risk premiums on interest rate spreads

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  • Berument, Hakan
  • Kilinc, Zubeyir
  • Ozlale, Umit

Abstract

This paper analyzes how the different types of inflation uncertainty affect a set of interest rate spreads for the UK. Three types of inflation uncertainty—structural uncertainty, impulse uncertainty, and steady-state inflation uncertainty—are defined and derived by using a time-varying parameter model with a GARCH specification. It is found that both the structural and steady-state inflation uncertainties increase interest rate spreads, while the empirical evidence for the impulse uncertainty is not conclusive.

Suggested Citation

  • Berument, Hakan & Kilinc, Zubeyir & Ozlale, Umit, 2004. "The effects of different inflation risk premiums on interest rate spreads," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 333(C), pages 317-324.
    • Handle: RePEc:eee:phsmap:v:333:y:2004:i:c:p:317-324
    DOI: 10.1016/j.physa.2003.10.039
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    Cited by:

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    4. Kang, Sang Hoon & Lahmiri, Salim & Uddin, Gazi Salah & Arreola Hernandez, Jose & Yoon, Seong-Min, 2020. "Inflation cycle synchronization in ASEAN countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 545(C).

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