Cracking the Conundrum
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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Copy CitationDavid K. Backus and Jonathan H. Wright, "Cracking the Conundrum," NBER Working Paper 13419 (2007), https://doi.org/10.3386/w13419.
Published Versions
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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