We construct probability forecasts for episodes of price deflation (i.e., a falling price level) using yields on nominal and real U.S. Treasury bonds. The deflation probability forecasts identify two "deflation scares" during the past decade: a mild one following the 2001 recession, and a more...

Affine dynamic term structure models (DTSMs) are the standard finance representation of the yield curve. However, the literature on DTSMs has ignored the coefficient bias that plagues estimated autoregressive models of persistent time series. We introduce new simulation-based methods for...

Previous research has emphasized the portfolio balance effects of Federal Reserve bond purchases, in which a reduced bond supply lowers term premia. In contrast, we find that such purchases have important signaling effects that lower expected future short term interest rates. Our evidence comes...

Obtaining monetary policy expectations from the yield curve is difficult near the zero lower bound (ZLB). Standard dynamic term structure models, which ignore the ZLB, can be misleading. Shadow-rate models are better suited for this purpose, because they account for the distributional asymmetry...

Empirical estimates of monetary policy rules suggest that the behavior of U.S. monetary policymakers changed during the past few decades. However, at the same time, statistical analyses of lagged representations of the economy, such as VARs, often have not rejected the null of structural...

This paper develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this new empirical formulation, we obtain several important...

Estimated monetary policy rules often appear to indicate a sluggish partial adjustment of the policy interest rate by the central bank. In fact, such evidence does not appear to be persuasive, since the illusion of monetary policy inertia may reflect spuriously omitted persistent influences on...

Nominal income rules for monetary policy have long been debated, but two issues are of particular recent interest. First, there are questions about the performance of such rules over a range of plausible empirical models-especially models with and without rational inflation expectations. Second,...

New Keynesian macroeconomic models have generally emphasized that expectations of future output are a key factor in determining current output. The theoretical motivation for such forward-looking behavior relies on a straightforward generalization of the well-known Euler equation for...

Using a short-term interest rate as the monetary policy instrument can be problematic near its zero bound constraint. An alternative strategy is to use a long-term interest rate as the policy instrument. We find when Taylor-type policy rules are used to set the long rate in a standard New...