This paper investigates the implications of a 2-regime model of the business cycle for term premiums and volatilities in the bond market. The model, which is estimated via maximum likelihood using GDP, consumption and production data, has two key features -- mean growth rates that vary across...

We provide a test of the liquidity preference hypothesis (i.e., the monotonicity of ex ante term premiums), conditioning on the shape of the yield curve. The approach we use is general, and does not require a structural model for conditional expected returns. Using nonparametric estimates, the...

This paper investigates the implications of a 2-regime model of the business cycle forterm premiums and volatilities in the bond market. The model, which is estimated viamaximum likelihood using GDP, consumption and production data, has two key features-mean growth rates that vary across regimes...