Equilibrium Yield Curves

Monika Piazzesi and Martin Schneider

No 12609, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers how the role of inflation as a leading business-cycle indicator affects the pricing of nominal bonds. We examine a representative agent asset pricing model with recursive utility preferences and exogenous consumption growth and inflation. We solve for yields under various assumptions on the evolution of investor beliefs. If inflation is bad news for consumption growth, the nominal yield curve slopes up. Moreover, the level of nominal interest rates and term spreads are high in times when inflation news are harder to interpret. This is relevant for periods such as the early 1980s, when the joint dynamics of inflation and growth was not well understood.

JEL-codes: E0 E3 E4 G0 G12 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-upt
Note: AP EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (226)

Published as Acemoglu, Daron, Kenneth Rogoff, and Michael Woodford (eds.) NBER Macroeconomics Annual 2006. Cambridge MA: MIT Press, 2007.
Published as Equilibrium Yield Curves , Monika Piazzesi, Martin Schneider. in NBER Macroeconomics Annual 2006, Volume 21 , Acemoglu, Rogoff, and Woodford. 2007

Downloads: (external link)
http://www.nber.org/papers/w12609.pdf (application/pdf)

Related works:
Chapter: Equilibrium Yield Curves (2007)
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:nbr:nberwo:12609

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12609

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().