Abstract
This study estimates the real term structure and real term premium of Korea. To do this, we construct an analytical real term structure and real term premium from a macro-finance affine term structure models with two macro variables. The macro factors include industrial production growth rate and inflation rate from January 2001 to August 2021. Our estimation results are based on Bayesian MCMC algorithm. We show that the real yield is downward trend after financial crisis. Compared to the nominal yield, it also exhibits relatively high persistent, less fluctuation and more stable. On the other hand, the real term premium is similar to the nominal term premium, since the inflation risk premium hardly different from zero on average. This result seems to be due to the fact that Korea inflation has maintained stable after adopting inflation targeting as a monetary policy.
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