NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cracking the Conundrum

David K. Backus, Jonathan H. Wright

NBER Working Paper No. 13419
Issued in September 2007
NBER Program(s):   AP   ME

From 2004 to 2006, the FOMC raised the target federal funds rate by 4.25%, yet long-maturity yields and forward rates fell. We consider several possible explanations for this "conundrum." The most likely, in our view, is a fall in the term premium, probably associated with some combination of diminished macroeconomic and financial market volatility, more predictable monetary policy, and the state of the business cycle.

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Document Object Identifier (DOI): 10.3386/w13419

Published: David K. Backus & Jonathan H. Wright, 2007. "Cracking the Conundrum," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2007-1), pages 293-329. citation courtesy of

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