Skip to main content
alt

Please enter a keyword and click the arrow to search the site

Or explore one of the areas below

How important are inflation expectations for the nominal yield curve?

Journal

Review of Financial Studies

Subject

Finance

Publishing details

Review of Financial Studies 2021 Vol 34:2 p 985-1045

Authors / Editors

Gomez-Cram R;Yaron A

Biographies

Roberto Gomez Cram

Publication Year

2021

Abstract

Macrofinance term structure models rely too heavily on the volatility of expected inflation news as a source for variations in nominal bond yield shocks. We develop and estimate a model featuring inflation nonneutrality and preference shocks. The stochastic volatility of inflation and consumption govern bond risk premiums movements, whereas preference shocks generate fluctuations in real rates. The model accounts for key bond market features without resorting to an overly dominating expected inflation channel. The estimation shows that preference shocks are strongly negatively correlated with market distress factors and that real rate news is the dominant driver of nominal yield shocks.

Publication Notes

Interest Rates: Determination, Term Structure, and Effects; Financial Markets and the Macroeconomy; Asset Pricing; Trading volume; Bond Interest Rates

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox

×

Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: https://london.edu/my-profile-preferences or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.