"Inflation Ambiguity and the Term Structure of U.S. Government Bonds"
©
Journal of Monetary Economics,
March
2013
Volume: 60
|
Issue: 2
|
Pages: 295-309
Publication type: Journal article
Research Archive Topic: Business Economics and Public Policy, Corporate Finance
Abstract
Variations in trend inflation are the main driver for variations in the nominal yield curve. According to empirical data, investors observe a set of empirical models that could all have generated the time-series for trend inflation. This set has been large and volatile during the 1970s and early 1980s and small during the 1990s. I show that log utility together with model uncertainty about trend inflation can explain the term premium in U.S. government bonds. The equilibrium has two inflation premiums, an inflation risk premium and an inflation ambiguity premium.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.