Changes in nominal interest rates must be due to either movements in real interest rates, expected inflation, or the … inflation risk premium. We develop a term structure model with regime switches, time-varying prices of risk, and inflation to … around 1.3%. In one real rate regime, the real term structure is steeply downward sloping. An inflation risk premium that …

. Key to our estimation strategy is the use of survey-based expectations for inflation and output. We identify accommodating … shocks shift to the low volatility regime around 1985 whereas inflation shocks do so only around 1990, suggesting active … monetary policy may have played role in anchoring inflation expectations. Shocks and policy regimes jointly drive the …