Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/113751
Authors: 
De Vries, Casper
Wang, Xuedong
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5421
Abstract: 
The term structure of interest rates does not adhere to the expectations hypothesis, possibly due to a risk premium. We consider the implications of a risk premium that arises from endogenous market segmentation driven by variable inflation rates. In the absence of autocorrelation in inflation, the risk premium is constant. If inflation is correlated, however, the risk premium becomes time varying and we can rationalize the failure of the expectations hypothesis. Indirect empirical tests of the model’s implications are provided.
Subjects: 
expectations hypothesis
term structure
time-varying risk premia
segmented markets
inflation
JEL: 
E43
G12
Document Type: 
Working Paper

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