Arbeitspapier
The term structure of expectations and bond yields
How much do term premiums matter for explaining the dynamics of the term structure of interest rates? A lot. We characterize the expected path of nominal and real short-rates as well as inflation using the universe of U.S. surveys of professional forecasters covering more than 500 survey-horizon pairs. We obtain term premiums as the simple difference between observed government bond yields and survey-based expected average short rates. Our term premiums measured directly based on expectations accommodate perceived structural change and learning effects, are consistent with a lower bound on nominal interest rates, and uncover a number of important facts: 1) the bulk of the variation in medium- and long-term bond yields is driven by term premiums, not expected short rates or inflation; 2) term premiums co-move more strongly across maturities than expected short rates or even yields themselves; 3) the term premium, not the term spread or the expected path of future short rates, predicts quarterly real output growth; 4) macroeconomic factors are important drivers of term premiums, with demand shocks playing the most prominent role; and 5) the secular decline of U.S. long-term bond yields over the past thirty years is primarily the result of a decline of expected inflation and term premiums while expected future real rates have fluctuated around 2 percent.
- Language
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Englisch
- Bibliographic citation
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Series: Staff Report ; No. 775
- Classification
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Wirtschaft
Expectations; Speculations
Financial Markets and the Macroeconomy
Asset Pricing; Trading Volume; Bond Interest Rates
- Subject
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term premiums
expectations formation
survey forecasts
monetary policy
business cycle fluctuations
- Event
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Geistige Schöpfung
- (who)
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Crump, Richard K.
Eusepi, Stefano
Moench, Emanuel
- Event
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Veröffentlichung
- (who)
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Federal Reserve Bank of New York
- (where)
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New York, NY
- (when)
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2016
- Handle
- Last update
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10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Crump, Richard K.
- Eusepi, Stefano
- Moench, Emanuel
- Federal Reserve Bank of New York
Time of origin
- 2016
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