TY  - JOUR
AU  - Backus,David K.
AU  - Wright,Jonathan H.
TI  - Cracking the Conundrum
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13419
PY  - 2007
Y2  - September 2007
UR  - http://www.nber.org/papers/w13419
L1  - http://www.nber.org/papers/w13419.pdf
N1  - Author contact info:
David Backus
Stern School of Business
NYU
44 West 4th Street
New York, NY 10012-1126
Tel: 212/998-0873
Fax: 212/995-4221
E-Mail: dbackus@stern.nyu.edu

Jonathan H. Wright
Department of Economics
Johns Hopkins University
3400 N. Charles Street
Baltimore, MD 21218
Tel: 410/516-5728
Fax: 410/516-7600
E-Mail: wrightj@jhu.edu
AB  - 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.
ER  -