How do interest rates react to news? This paper presents a new methodology, based on a simple dynamic term structure model, which provides for an integrated analysis of the effects of monetary policy actions and macroeconomic news on the term structure of interest rates. I find several new...

Previous research has emphasized the portfolio balance effects of Federal Reserve bond purchases, in which a reduced bond supply lowers term premia. In contrast, we find that such purchases have important signaling effects that lower expected future short term interest rates. Our evidence comes...

Affine dynamic term structure models (DTSMs) are the standard finance representation of the yield curve. However, the literature on DTSMs has ignored the coefficient bias that plagues estimated autoregressive models of persistent time series. We introduce new simulation-based methods for...

How do monetary policy expectations and term premia respond to news? This paper provides new answers to this question by means of a dynamic term structure model (DTSM) in which risk prices are restricted. This leads to more precise and more reliable estimates of expectations and term premium...

Past rounds of large-scale asset purchases by the Federal Reserve have lowered yields not only on the targeted securities, but also on various private borrowing rates. In particular, yields on corporate bonds and primary mortgage rates decreased in response to Fed asset purchase announcements....

Market expectations about the Federal Reserve’s policy rate involve both the future path of that rate and the uncertainty surrounding that path. Fed policy actions have historically been preceded by high levels of uncertainty, which decline after the policy is made public. Recently, measures...

The real interest rate plays a central role in many important financial and macroeconomic models, including the consumption-based asset pricing model, neoclassical growth model, and models of the monetary transmission mechanism. The authors selectively survey the empirical literature that...

Option prices can be used to infer the level of uncertainty about future asset prices. The first two parts of this article explain such measures (implied volatility) and how they can differ from the market's true expectation of uncertainty. The third then estimates the implied volatility of...

The real interest rate plays a central role in many important financial and macroeconomic models, including the consumption-based asset pricing model, neoclassical growth model, and models of the monetary transmission mechanism. We selectively survey the empirical literature that examines the...