We provide a new structural interpretation of the relationship between the slope of the term structure of interest rates and macroeconomic fundamentals. We first adopt an agnostic identification approach that allows us to identify the shocks that explain most of the movements in the slope. We...

This paper shows that in the presence of Markov regime shifts, Full Information Rational Expectations (FIRE) models lead to predictable, regime-dependent forecast errors. More generally, regime shifts imply that ex-post forecast error regressions display waves of overand under-reaction to...

We adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the term structure of interest rates. We find that one single shock can explain the majority of all unpredictable movements in the slope over a 10-year forecast horizon. Impulse response...