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Working Paper
Equilibrium Yield Curves with Imperfect Information
I study the dynamics of default-free bond yields and term premia using a novel equilibrium term structure model with a New-Keynesian core and imperfect information about productivity. Imperfect information can justify a shock to signals about productivity that does not lead to actual changes in productivity, which can be interpreted as a demand shock. When incorporated in a DSGE term structure model with a standard productivity shock, this demand shock generates term premia that are on average higher, with sizable countercyclical variation that arises endogenously. The model helps reconcile ...
Working Paper
Equilibrium Yield Curves with Imperfect Information
I study the dynamics of default-free bond yields and term premia using a novel equilibrium term structure model with a New-Keynesian core and imperfect information about productivity. The model generates term premia that are on average positive with sizable countercyclical variation that arises endogenously. Importantly, demand shocks, in addition to supply shocks, play a key role in the dynamics of term premia. This is in sharp contrast to existing DSGE term structure models with perfect information, which tend to rely on large supply shocks to generate timevariation in yields and term ...