The New Keynesian Model and Bond Yields

Publikation: Working paper/Preprint Working paperForskning


  • rp21_01

    Forlagets udgivne version, 837 KB, PDF-dokument

This paper presents a New Keynesian model to capture the linkages between macro fundamentals and the nominal yield curve. The model explains bond yields with a low level of news in expected inflation and plausible term premia. This implies that the slope of the yield curve predicts future bond returns, and that risk-adjusted historical bond returns satisfy the expectations hypothesis. A key implication of the model is that U.S. bond yields are consistent with demand shocks that are three times less inflationary than implied by a standard log-linearized New Keynesian model estimated without bond yields.
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider41
StatusUdgivet - 9 jan. 2021
SerietitelCREATES Research Papers


  • Inflation variance ratios, Robust structural estimation, Term premia, The expectations hypothesis, Unspanned macro variation

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