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...

The term premium in standard macroeconomic DSGE models is far too small and stable relative to the data—an example of the "bond premium puzzle." However, in endowment economy models, researchers have generated reasonable term premiums by assuming investors have recursive Epstein-Zin...

To make financial conditions more supportive of economic growth, the Federal Reserve has purchased large amounts of longer-term securities in recent years. The Fed's resulting securities portfolio has generated substantial income but may incur financial losses when market interest rates rise....

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...

We construct probability forecasts for episodes of price deflation (i.e., a falling price level) using yields on nominal and real U.S. Treasury bonds. The deflation probability forecasts identify two "deflation scares" during the past decade: a mild one following the 2001 recession, and a more...

During the past decade, much new research has combined elements of finance, monetary economics and macroeconomics in order to study the relationship between the term structure of interest rates and the economy. In this survey, I describe three different strands of such interdisciplinary...

Differences between yields on comparable-maturity U.S. Treasury nominal and real debt, the so-called breakeven inflation (BEI) rates, are widely used indicators of inflation expectations. However, better measures of inflation expectations could be obtained by subtracting inflation risk premiums...

Obtaining monetary policy expectations from the yield curve is difficult near the zero lower bound (ZLB). Standard dynamic term structure models, which ignore the ZLB, can be misleading. Shadow-rate models are better suited for this purpose, because they account for the distributional asymmetry...

The affine dynamic term structure model (DTSM) is the canonical empirical finance representation of the yield curve. However, the possibility that DTSM estimates may be distorted by small-sample bias has been largely ignored. We show that conventional estimates of DTSM coefficients are indeed...