Title: Term premia with macro expectations
Authors: Andrea Berardi - University of Venice (Italy) [presenting]
Abstract: Term premia are sensitive to volatility and macroeconomic conditions. The aim is to estimate an affine term structure model with time-varying volatility where term premia are strictly interrelated to investors' expectations of future inflation and output growth. The empirical work is based on data for the US, the UK and the Euro Area. In contrast to previous yield-only models, we find that there is strong business cycle variation in term premia that is not revealed in the yield curve and that a significant percentage of the movements can be explained by macro expectations. We also provide evidence on the dynamics of the components of the term premium, that is the inflation risk premium and the real term premium, and on the degree of connectedness of these variables among the different countries.