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A SVECM Model of the UK Economy and The Term Premium

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Dungey, M and Vehbi, M.T. (2011) A SVECM Model of the UK Economy and The Term Premium. Discussion Paper. School of Economics and Finance, University of Tasmania. (Unpublished)

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Abstract

The term premium is estimated from an empirically coherent open economy VAR model of the UK economy where the model specifically accounts for the mixed nature of the data and cointegration between some variables. Using this framework the estimated negative term premia for 1980-2007 is decomposed into its contributing shocks, where the role of inflation and monetary policy shocks are shown to be dominant in the evolution of the term premium. Projecting into the 2008 crisis period reveals the extent of the shocks to the UK economy, and also shows the similarities in term premia behaviour with those experienced during the 1998 Russian crisis.

Item Type: Report (Discussion Paper)
Keywords: Structural VECM models, term premium, crisis
Publisher: School of Economics and Finance, University of Tasmania
Date Deposited: 26 Aug 2011 03:07
Last Modified: 26 Aug 2011 03:07
URI: http://eprints.utas.edu.au/id/eprint/11610
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