Cracking the Conundrum

David Backus and Jonathan Wright

No 13419, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: From 2004 to 2006, the FOMC raised the target federal funds rate by 4.25%, yet long-maturity yields and forward rates fell. We consider several possible explanations for this "conundrum." 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.

JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
Note: AP ME
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Citations: View citations in EconPapers (77)

Published as David K. Backus & Jonathan H. Wright, 2007. "Cracking the Conundrum," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2007-1), pages 293-329.

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Journal Article: Cracking the Conundrum (2007)
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