Macroeconomic Implications of Changes in the Term Premium

Authors

Glenn D. Rudebusch

Brian P. Sack

Eric T. Swanson

Download PDF
(468 KB)

2006-46 | November 1, 2006

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. We investigate these implications using both a structural model and a reduced-form framework. We 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.

About the Authors