September 27, 2018

The “Term Premium” Meme

This is Ben Bernanke in March 2006 on Reflections on the Yield Curve and Monetary Policy: However, if the behavior of long-term yields reflects current or prospective economic conditions, the implications for policy may be quite different–indeed, quite the opposite. The simplest case in point is when low or falling long-term yields reflect investor expectations of future economic weakness. Suppose, for example, that investors expect economic activity to slow at some point in the future. If investors expect that weakness to require policy easing in the medium term, they will mark down their projected path of future spot interest rates,… Read More