Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/122053
Authors: 
Carriero, Andrea
Mouabbi, Sarah
Vangelista, Elisabetta
Year of Publication: 
2015
Series/Report no.: 
Working Paper, School of Economics and Finance, Queen Mary, University of London 755
Abstract: 
This paper employs a Zero Lower Bound (ZLB) consistent shadow-rate model to decompose UK nominal yields into expectation and term premia components. Compared to a standard affine term structure model, it performs relatively better in a ZLB setting and effectively captures the countercyclical nature of term premia. The ZLB model is then exploited to estimate inflation expectations and risk premia. This entails jointly pricing and decomposing nominal and real UK yields. We find evidence that medium- and long-term inflation expectations are contained within narrower bounds since the early 1990s, suggesting monetary policy credibility improved after the introduction of inflation targeting.
Subjects: 
No-arbitrage
Term structure
Zero-lower bound
Risk premia
Inflation Expectations
JEL: 
E31
E43
E52
E58
G12
Document Type: 
Working Paper

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