Pricing Kernels, Inflation, and the Term Structure of Interest Rates
We estimate a discrete-time multivariate pricing kernel for the term structure of interest rates, using both yields and inflation rates. This gives a separate estimate of the real kernel and the nominal kernel, taking into account a relatively sophisticated dynamical structure and mutual interaction between the real and nominal side of the economy. Along with obtaining an estimate of the real term structure, we use the estimates to obtain a new perspective on how real and nominal influences interact to produce the observed term structure.
Keywords: Inflation, term structure, asset pricing
Suggested citation: Craig, Ben, and Joseph Haubrich, 2003. "Pricing Kernels, Inflation, and the Term Structure of Interest Rates,” Federal Reserve Bank of Cleveland, Working Paper, no. 03-08.