Was there a « Greenspan Conundrum » in the Euro area?

Gildas LAMÉ

This paper implements an affine term structure model that accommodates "unspanned" macro risks for the Euro area, i.e. distinct from yield-curve risks. I use an averaging-estimator approach to obtain a better estimation of the historical dynamics of the pricing factors, thus providing more accurate estimates of the term premium incorporated into the Eurozone's sovereign yield curve. I then look for episodes of the monetary cycle where long yields display a puzzling behavior vis-à-vis the short rate and its expected average path in contrast with the Expectation Hypothesis. The Euro-area bond market appears to have gone through its own "Greenspan conundrum" between January 1999 and August 2008. The term premium substantially contributed to these odd phenomena.

Documents de travail
No G2013/10
Paru le : 27/09/2013