Macroeconomic Implications of Changes in the Term Premium


Glenn D. Rudebusch

Brian P. Sack

Eric T. Swanson

Download PDF
(468 KB)

2006-46 | November 1, 2006

Linearized New Keynesian models and empirical no-arbitrage macro-finance models offer little insight regarding the implications of changes in bond term premiums for economic activity. We investigate these implications using both a structural model and a reduced-form framework. We show that there is no structural relationship running from the term premium to economic activity, but a reduced-form empirical analysis does suggest that a decline in the term premium has typically been associated with stimulus to real economic activity, which contradicts earlier results in the literature.

Article Citation

Sack, Brian P., Eric T. Swanson, and Glenn D. Rudebusch. 2006. “Macroeconomic Implications of Changes in the Term Premium,” Federal Reserve Bank of San Francisco Working Paper 2006-46. Available at