Time-varying term premia on U.S. Treasury bills and bonds

We use instrumental variables estimation to document variation in ex ante term premia on U.S. Treasury bills and bonds of maturities ranging from two months to twenty years. For the April 1959 to December 1989 sample period, ex ante term premia are found to be positively related to the ex ante variability in the nominal one-month risk-free rate of interest. Significant shifts in the stochastic process generating term premia are documented subsequent to the October 1979 and October 1982 shifts in monetary policy. Subperiod results document variation in ex ante tenn premia in each of the three monetary regimes.