- Mar. 18, 2019
- Mar. 13, 2019
- Mar. 7, 2019
Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2015 > (Research Paper) Estimating inflation risk premia from nominal and real yield curves using a shadow-rate model
April 16, 2015
Click on Full Text [PDF 610KB]
This paper proposes and estimates an extended shadow-rate term structure model, and uses it to extract inflation risk premia from nominal and real term structures. Our model incorporates the shadow rate and thereby explicitly takes account of the zero lower bound constraint of nominal interest rates. The estimation results for Japan and the United States confirm that our model successfully avoids the estimation bias inherent in the standard affine-type term structure model that ignores the zero lower bound. As we theoretically and empirically demonstrate, the inflation risk premium is time-varying and takes both positive and negative values reflecting market concerns with regard to asymmetric uncertainty in future inflation.
E31, E43, E52, G12
Arbitrage-free term structure; Inflation risk premium; Shadow rate; Term premium; Zero lower bound
We are grateful for the helpful comments from the staff of the Bank of Japan. The views expressed herein are those of the authors alone and do not necessarily reflect those of the Bank of Japan.
Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (email@example.com) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.