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Nominal term structure and term premia: evidence from Chile

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  • Luis Ceballos
  • Alberto Naudon
  • Damián Romero

Abstract

The downwards trend exhibited in Chile’s nominal term structure since 2003 has been a common pattern shared by other developed and developing economies. To understand the behaviour of the nominal yield curve in Chile, we rely on an affine dynamic term structure model which allows the term structure to decompose into the expected short-term interest rate (related to the monetary policy expectation) and the term premium. We show that most of the fall of long-term interest rates as well as its dynamics are related to the term premium rather than the expected short-term interest rate. Moreover, we find evidence that term premium is driven primarily by the US term premium and domestic nominal uncertainty derived from expected inflation.

Suggested Citation

  • Luis Ceballos & Alberto Naudon & Damián Romero, 2016. "Nominal term structure and term premia: evidence from Chile," Applied Economics, Taylor & Francis Journals, vol. 48(29), pages 2721-2735, June.
  • Handle: RePEc:taf:applec:v:48:y:2016:i:29:p:2721-2735
    DOI: 10.1080/00036846.2015.1128079
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    Cited by:

    1. Rodrigo Vergara & Elías Albagli, 2015. "Tasas de Interés de Largo Plazo en Economías Desarrolladas: Tendencias Recientes e Implicancias de Política Monetaria en Chile," Economic Policy Papers Central Bank of Chile 52, Central Bank of Chile.
    2. repec:chb:bcchni:v:20:y:2017:i:2:p:150-165 is not listed on IDEAS
    3. Luis Ceballos & Damián Romero, 2015. "Decomposing Long-Term Interest Rates: An International Comparison," Working Papers Central Bank of Chile 767, Central Bank of Chile.
    4. repec:chb:bcchni:v:20:y:2017:i:3:p:120-143 is not listed on IDEAS
    5. Sebastián Claro & Carola Moreno, 2015. "Long-term rates and the term premium: evidence from Chile," BIS Papers chapters,in: Bank for International Settlements (ed.), What do new forms of finance mean for EM central banks?, volume 83, pages 97-112 Bank for International Settlements.
    6. Andrew Blake & Garreth Rule & Ole Rummel, 2015. "Inflation targeting and term premia estimates for Latin America," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 24(1), pages 1-21, December.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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