Title:

How do term premia change over time? Evidence from the US dollar LIBOR data using a Fourier approximation

Group publication title:

Argumenta Oeconomica

Creator:

Miłobędzki, Paweł

Subject and Keywords:

term structure of interest rates ; expectations hypothesis ; perfect foresight spread ; time-varying term premium ; Fourier approximation ; US dollar LIBORs

Description:

Argument Oeconomica, 2016, Nr 1 (36), s. 67-86

Abstrakt:

Using Gallant’s (1981) version of the Fourier flexible form we modify the perfect foresight spread equation that allows for a time-varying term premium and estimate it on the weekly sampled US dollar LIBORs ranging from January 1998 to June 2013 to find out that the term premia not only vary over time for the whole spectrum of maturities but are periodic, change with the US business cycle and are broken within the recession periods. We also reveal that – on average – the longer the maturity, the greater the term premium, both in the boom and in the recession. The other significant feature of the term premia for all maturities is that the boom premia are many times smaller than their recession counterparts. For the maturities of 35 weeks and over, the yield spread is a good predictor of future changes in the short interest rate. For other maturities it turns out to be a downwards biased predictor. Except for the two shortest maturities, all restricted perfect foresight spread regressions, i.e. those ignoring the change of premia with the business cycle and their breaks, are misspecified

Publisher:

Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu

Place of publication:

Wrocław

Date:

2016

Resource Type:

artykuł

Format:

application/pdf

Resource Identifier:

doi:10.15611/aoe.2016.1.03

Language:

eng

Relation:

Argumenta Oeconomica, 2016, Nr 1 (36)

Rights:

Wszystkie prawa zastrzeżone (Copyright)

Access Rights:

Dla wszystkich w zakresie dozwolonego użytku

Location:

Uniwersytet Ekonomiczny we Wrocławiu