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http://ssrn.com/abstract=965122
 
 

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The Term Structure of Real Rates and Expected Inflation


Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Geert Bekaert


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Min Wei


Board of Governors of the Federal Reserve - Division of Monetary Affairs

February 2007

NBER Working Paper No. w12930

Abstract:     
Changes in nominal interest rates must be due to either movements in real interest rates, expected inflation, or the inflation risk premium. We develop a term structure model with regime switches, time-varying prices of risk, and inflation to identify these components of the nominal yield curve. We find that the unconditional real rate curve in the U.S. is fairly flat around 1.3%. In one real rate regime, the real term structure is steeply downward sloping. An inflation risk premium that increases with maturity fully accounts for the generally upward sloping nominal term structure.

Number of Pages in PDF File: 68

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Date posted: February 24, 2007  

Suggested Citation

Ang, Andrew and Bekaert, Geert and Wei, Min, The Term Structure of Real Rates and Expected Inflation (February 2007). NBER Working Paper No. w12930. Available at SSRN: http://ssrn.com/abstract=965122

Contact Information

Andrew Ang (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Geert Bekaert
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Min Wei
Board of Governors of the Federal Reserve - Division of Monetary Affairs ( email )
20th and C Streets, NW
Washington, DC 20551
United States
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