Equilibrium yield curves with imperfect information

Hiroatsu Tanaka

Journal of Monetary Economics, 2025, vol. 149, issue C

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)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393224000746
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:149:y:2025:i:c:s0304393224000746

DOI: 10.1016/j.jmoneco.2024.103621

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().