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Federal Reserve Bank of San Francisco
Working Paper Series
Macroeconomic implications of changes in the term premium
Glenn D. Rudebusch
Brian P. Sack
Eric T. Swanson
Abstract

Linearized New Keynesian models and empirical no-arbitrage macro-finance models offer little insight regarding the implications of changes in bond term premiums for economic activity. We investigate these implications using both a structural model and a reduced-form framework. We show that there is no structural relationship running from the term premium to economic activity, but a reduced-form empirical analysis does suggest that a decline in the term premium has typically been associated with stimulus to real economic activity, which contradicts earlier results in the literature.


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Glenn D. Rudebusch & Brian P. Sack & Eric T. Swanson, Macroeconomic implications of changes in the term premium, Federal Reserve Bank of San Francisco, Working Paper Series 2006-46, 2006.
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Keywords: Interest rates ; Economic forecasting ; Econometric models
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