THE TERM STRUCTURE OF REAL INTEREST-RATES AND THE COX, INGERSOLL, ANDROSS MODEL

This paper estimates real term structures from cross-sections of Briti sh government index-linked ('real') bond prices. The Cox, Ingersoll, a nd Ross (1985) model is then fitted to the same data; the model closel y approximates the shapes of the directly-estimated term structures. I n contrast to similar studies of the nominal term structure, the long- term zero-coupon yield is quite stable, as the CIR model predicts, and in common with previous studies, the level of implied short rate vola tility corresponds well with time series estimates. The other paramete rs, however, are often highly correlated and intertemporal parameter s tability is rejected.