Equilibrium Yield Curves
This paper considers how the role of inflation as a leading business-cycle indicator affects the pricing of nominal bonds. We examine a representative agent asset pricing model with recursive utility preferences and exogenous consumption growth and inflation. We solve for yields under various assumptions on the evolution of investor beliefs. If inflation is bad news for consumption growth, the nominal yield curve slopes up. Moreover, the level of nominal interest rates and term spreads are high in times when inflation news are harder to interpret. This is relevant for periods such as the early 1980s, when the joint dynamics of inflation and growth was not well understood.
-
-
Copy CitationMonika Piazzesi and Martin Schneider, "Equilibrium Yield Curves," NBER Working Paper 12609 (2006), https://doi.org/10.3386/w12609.Download Citation
-
Published Versions
Acemoglu, Daron, Kenneth Rogoff, and Michael Woodford (eds.) NBER Macroeconomics Annual 2006. Cambridge MA: MIT Press, 2007.
Equilibrium Yield Curves, Monika Piazzesi, Martin Schneider. in NBER Macroeconomics Annual 2006, Volume 21, Acemoglu, Rogoff, and Woodford. 2007
Related
Mentioned in the News
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
