Download This PaperCracking the Conundrum
35 Pages Posted: 13 Oct 2008
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Cracking the Conundrum
Date Written: May 2007
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 explanationsfor 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.
Keywords: yield curve, forward rates, volatility, term premium, affine models, monetary policy
Suggested Citation: Suggested Citation
David K. Backus (Contact Author)
NYU Stern School of Business
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HOME PAGE: http://pages.stern.nyu.edu/~dbackus/
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