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Bond positions, expectations, and the yield curve

Monika Piazzesi () and Martin Schneider ()

No 2008-02, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper implements a structural model of the yield curve with data on nominal positions and survey forecasts. Bond prices are characterized in terms of investors' current portfolio holdings as well as their subjective beliefs about future bond payoffs. Risk premia measured by an econometrician vary because of changes in investors' subjective risk premia that are identified from portfolios and subjective beliefs but also because subjective beliefs differ from those of the econometrician. The main result is that investors' systematic forecast errors are an important source of business cycle variation in measured risk premia. By contrast, subjective risk premia move less and more slowly over time.

Keywords: Bonds - Prices; Consumer behavior (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-rmg
Date: 2008
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Related works:
Working Paper: Bond Positions, Expectations, and the Yield Curve (2008)
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