Hisashi Nakamura (Faculty of Economics, University of Tokyo) Keita Nakayama (Graduate School of Economics, University of Tokyo) Akihiko Takahashi (Faculty of Economics, University of Tokyo)
Abstract
This paper proposes a testable continuous-time term-structure model with recursive utility to investigate structural relationships between the real economy and the term structure of real and nominal interest rates. Under mean-reverting expectation on real output growth and inflation, this paper finds that, if interest rates tend to be high during economic booms, then a real yield curve slopes up when, and only when, late resolution is preferred strongly enough. Also, even when the real yield curve slopes down, the nominal yield curve may slope up when expected inflation is negatively correlated with the real output growth.
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Publisher Info
Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number
CIRJE-F-540.