Macroeconomic implications of changes in the term premium

Glenn Rudebusch (), Brian P. Sack and Eric Thomas Swanson ()

No 2006-46, Working Paper Series from Federal Reserve Bank of San Francisco

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.

Keywords: Interest rates; Economic forecasting; Econometric models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-for
Date: 2006
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Journal Article: Macroeconomic implications of changes in the term premium (2007)
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