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Working Paper

Pricing Kernels, Inflation, and the Term Structure of Interest Rates

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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.
10.01.2003ISSN 2573-7953 WP 03-08DOI 10.26509/frbc-wp-200308
Keywords inflation, term structure, asset pricing

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Craig, Ben R., and Joseph G. Haubrich. 2003. “Pricing Kernels, Inflation, and the Term Structure of Interest Rates.” Federal Reserve Bank of Cleveland, Working Paper No. 03-08. https://doi.org/10.26509/frbc-wp-200308