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A New Approach to Measuring Market Expectations and Term Premia
Stockholm University, Faculty of Social Sciences, Stockholm Business School.ORCID iD: 0000-0003-4849-2553
2015 (English)In: Journal of Fixed Income, ISSN 1059-8596, E-ISSN 2168-8648, Vol. 24, no 4, 22-46 p.Article in journal (Refereed) Published
Abstract [en]

This article develops a novel approach for measuring market expectations and term premia in the term structure of interest rates. Key components of this approach are generic impact measures of state variables in a Gaussian dynamic term structure model. These measures are inherent in a particular state variable regardless of how other state variables are defined within the model. With the help of these measures, the approach gives rise to market expectations that predict yield changes well, and term premia with a legitimate impact on the forward curve. In my empirical analysis, I show the generic impact of the short rate on the yield curve, and present observations of the historical dynamics of market expectations and term premia. The calibrated model is also employed to study the impacts of recent unconventional monetary policies.

Place, publisher, year, edition, pages
2015. Vol. 24, no 4, 22-46 p.
Keyword [en]
term structure of interest rates, market expectations, short rate, LSAP, MEP, QE3
National Category
Business Administration
Research subject
Business Administration
Identifiers
URN: urn:nbn:se:su:diva-115865DOI: 10.3905/jfi.2015.24.4.022OAI: oai:DiVA.org:su-115865DiVA: diva2:800505
Available from: 2015-04-06 Created: 2015-04-06 Last updated: 2017-12-04Bibliographically approved

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Publisher's full texthttp://www.iijournals.com/doi/abs/10.3905/jfi.2015.24.4.022

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