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Macroeconomic implications of changes in the term premium

  • Glenn D. Rudebusch
  • Brian P. Sack
  • Eric T. Swanson

Linearized New Keynesian models and empirical no-arbitrage macro-finance models offer little insight regarding the implications of changes in bond term premiums for economic activity. This paper investigates these implications using both a structural model and a reduced-form framework. The authors show that there is no structural relationship running from the term premium to economic activity, but a reduced-form empirical analysis does suggest that a decline in the term premium has typically been associated with stimulus to real economic activity, which contradicts earlier results in the literature.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2007)
Issue (Month): Jul ()
Pages: 241-270

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Handle: RePEc:fip:fedlrv:y:2007:i:jul:p:241-270:n:v.89no.4
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