Cracking the Conundrum

David Backus () and Jonathan H. Wright
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Jonathan H. Wright: Board of Governors of the Federal Reserve System

Brookings Papers on Economic Activity, 2007, vol. 38, issue 2007-1, pages 293-329

Abstract: From 2004 to 2006 the Federal Open Market Committee raised the target federal funds rate by 4.25 percentage points, yet long-maturity yields and forward rates fell. We consider several possible explanations for this conundrum of rising short-term and falling long-term interest rates. The most likely, in our view, is a fall in the term premium, probably associated with some combination of diminished macroeconomic and financial market volatility, more predictable monetary policy, and the state of the business cycle.

Keywords: macroeconomics; Federal funds rate; interest rates; financial market volatility (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
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Related works:
Working Paper: Cracking the Conundrum (2007)
Working Paper: Cracking the Conundrum (2007)
Working Paper: Cracking the conundrum (2007)
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