Long-memory Inflation Uncertainty: Evidence from the Term Structure of Interest Rates

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We use a fractional difference model to reconcile two features of yields on US government bonds with modem asset pricing theory: the persistence of the short rate and variability of the long end of the yield curve. We suggest that this process might arise from the response of the heterogeneous agents to the changes in monetary policy.

Published: Journal of Money, Credit and Banking, 25 (August 1993, Part 2) pp681-700.

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