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

43 Pages Posted: 26 Mar 2008

See all articles by Luis A. Gil-Alana

Luis A. Gil-Alana

University of Navarra - Department of Economics

Antonio Moreno

School of Economics and Business, University of Navarra

Date Written: October 23, 2007

Abstract

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.

Keywords: Interest Rates, Term Premium, Fractional Integration

JEL Classification: E4, G1, C5

Suggested Citation

Gil-Alana, Luis A. and Moreno, Antonio, Uncovering the U.S. Term Premium: An Alternative Route (October 23, 2007). Available at SSRN: https://ssrn.com/abstract=1023914 or http://dx.doi.org/10.2139/ssrn.1023914

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Antonio Moreno (Contact Author)

School of Economics and Business, University of Navarra ( email )

Ed. Amigos
Pamplona, Navarra 31009
Spain

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