Equilibrium Yield Curves with Imperfect Information

Hiroatsu Tanaka
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Hiroatsu Tanaka: https://www.federalreserve.gov/econres/hiroatsu-tanaka.htm

No 2022-086r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: 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 the empirical evidence that term premia have been on average positive and countercyclical, with numerous studies pointing to demand shocks as a key driver of business cycles over the last few decades.

Keywords: Yield Curve; Term Premium; Term Structure of Interest Rates; DSGE Model; Imperfect Information; Learning (search for similar items in EconPapers)
JEL-codes: D83 E12 E43 E44 E52 G12 (search for similar items in EconPapers)
Pages: 61 p.
Date: 2022-12, Revised 2024-08-13
New Economics Papers: this item is included in nep-dge and nep-mon
Note: Revision
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2022-86

DOI: 10.17016/FEDS.2022.086r1

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