Topic: Contributions on financial time series and risk premia Title: UK term structure decompositions at the zero lower bound Authors:  Sarah Mouabbi - Banque de France (France) [presenting]
Andrea Carriero - QMUL (United Kingdom)
Elisabetta Vangelista - Debt Management Office UK (United Kingdom)
Abstract: A Zero Lower Bound (ZLB) consistent shadow-rate model is employed 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 that the asset purchases programme, launched in March 2009, was successful in re-anchoring inflation expectations in the aftermath of Lehman Brothers bankruptcy.