Learning and the Role of Macroeconomic Factors in the Term Structure of Interest Rates

model and estimate by maximum likelihood the parameters governing the market price of risk. We show that agents' beliefs about the joint evolution of macroeconomic variables has changed in quantitatively important and economically meaningful ways. Moreover, macroeconomic factors turn out to be more influential in the determination of bond yields than previously found. We argue that our results for the term structure highlight the more general point that, for understanding certain macroeconomic phenomena, it is critical not to assume too much prior knowledge on the part of agents.