IDEAS home Printed from https://ideas.repec.org/p/boi/wpaper/2021.04.html
   My bibliography  Save this paper

Decomposing the Israeli Term Structure of Interests Rates

Author

Listed:
  • Daniel Nathan

    (Bank of Israel)

Abstract

This paper decomposes the Israeli term structure of interest rates into two parts: the expected path of real interest rates and the risk premia for 01/1985—12/2019. We carry out the estimation using a discrete-time essentially affine term structure model (ATSM). ATSM models are essentially reduced-form models: they assume that latent factors drive the economy, and are extensively used by major central banks to infer risk premia in the term structure. The results show that part of the decline in real yields since 1985 was accompanied by a substantial decrease in the real risk premium; the compensation investors require to hold government indexed-bonds has gone down substantially. The compensation has been as high as 3% for the 10-year real yield and has gone down to around zero in recent years. The inflation risk premium (an inflation compensation which is part of the nominal yield curve), has also shown a significant drop in recent years. The inflation risk premium has become slightly negative in recent years after being as high as 2.5% in early 2000 for the 10-year nominal yield.

Suggested Citation

  • Daniel Nathan, 2021. "Decomposing the Israeli Term Structure of Interests Rates," Bank of Israel Working Papers 2021.04, Bank of Israel.
  • Handle: RePEc:boi:wpaper:2021.04
    as

    Download full text from publisher

    File URL: https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_2021.04.pdf
    File Function: First version, 2021
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boi:wpaper:2021.04. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/boigvil.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yossi Yakhin (email available below). General contact details of provider: https://edirc.repec.org/data/boigvil.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.