Statement
When nominal Treasury yields are decomposed into real rates, expected inflation, and the inflation risk premium under a regime-switching no- arbitrage affine model, the implied ex-ante real-rate term structure is approximately flat across maturities (level ≈ 1.3% in the US sample), with at most a small downward slope at long horizons. Equivalently, the bulk of the slope of the nominal curve is not coming from rising expected real rates.
Evidence summary
The strongest direct evidence is the model-implied real curve from ang-bekaert-wei-2008-real-rates-expected-inflation, which is the canonical no-arbitrage decomposition for US nominal yields without TIPS. The result is robust to the regime-switching extension (a constant-parameter version of the same model produces a similar level for the real curve, but mis-prices long maturities elsewhere). Cross-checks against post-TIPS data and against alternative decompositions are not yet ingested in the wiki.
Conditions and scope
- US Treasury yield data, pre-TIPS sample.
- A no-arbitrage three-factor regime-switching affine specification.
- Identification leans on observed survey expectations of inflation; if those are biased, the real-rate decomposition can shift.
- Strictly an ex-ante statement: the realized real curve will of course fluctuate.
Counter-evidence
(none ingested yet — to be filled when alternative decompositions enter the wiki)
Linked ideas
(none yet)
Open questions
- Does the flat-real-rate result survive when post-2003 TIPS data is added as an additional measurement equation?
- Is the result driven by the regime-switching specification or by the survey measurement equation?
- How does this interact with secular declines in r-star post-2008?