Forward rates in the money market are systematically higher than realised spot rates, reflecting an unobservable term premium. This paper uses a Kalman filter specification to produce time-varying estimates of the term premia in New Zealand and Australia. Three time series specifications are used to examine the properties of the premia, such as the average size, volatility, and the degree of mean reversion.
Gordon, Michael (2004). ‘Estimates of time‐varying term premia for New Zealand and Australia’, Managerial Finance, Emerald Insight, Volume 30(7), Pages 36-59, DOI: https://doi.org/10.1108/03074350410769164.