Title: A macroeconomic approach to the term premium
Authors: Peter Williams - International Monetary Fund (United States) [presenting]
Emanuel Kopp - International Monetary Fund (Austria)
Abstract: A semi-structural dynamic term structure model is proposed which is augmented with macroeconomic factors to include cyclical dynamics with a focus on medium- to long-run forecasts. The results clearly show that a macroeconomic approach is warranted: While term premium estimates are in line with those from other studies, we provide (i) plausible, stable estimates of expected long-term interest rates and (ii) forecasts of short- and long-term interest rates as well as cyclical macroeconomic variables that are stunningly close to those generated from large-scale macroeconomic models.