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

  • Luis Gil-Alana

    ()

    (University of Navarra)

  • Antonio Moreno

    ()

    (University of Navarra)

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.

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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 12/07.

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Length: 45 pages
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Handle: RePEc:una:unccee:wp1207
Contact details of provider: Web page: http://www.unav.es/facultad/econom

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