Real and Nominal Equilibrium Yield Curves.

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Date: Feb. 2021
From: Management Science(Vol. 67, Issue 2)
Publisher: Institute for Operations Research and the Management Sciences
Document Type: Report
Length: 12,061 words
Lexile Measure: 1660L

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Abstract :

This paper quantitatively explores the role of external habits, nominal rigidities, and monetary policy for real and nominal bond yields in an asset-pricing endogenous growth model. The calibration captures the reported average positive slopes of U.S. real and nominal yield curves with sizable positive real and nominal bond risk premia. Habits are critical to generate positive real premia by altering the comovement of real rates and productivity shocks. Nominal rigidities generate monetary policy effects on real bonds. Stronger policy rule inflation responses or weaker output responses increase real term premia and reduce inflation risk premia. Relative to standard models, the paper provides an alternative interpretation of real and nominal bond risks. Keywords: term structure of interest rates * bond risk premia * monetary policy * nominal rigidities

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Source Citation   

Gale Document Number: GALE|A662305295