Real-business-cycle models suggest that an increase in the rate of productivity growth increases the real rate of interest. But economic theory is ambiguous when it comes to the effect of government budget deficits on the real rate of interest. Similarly, little is known about the effect of...

On the plus side, low interest rates can spur spending by businesses and households. But low interest rates discourage saving and encourage people to take more risks when investing.

When oil prices jump, people get jumpy-especially when the Fed is bumping up interest rate targets at the same time. Why? Because these two events have accompanied virtually every recession since World War II. At least until now.

Economic news affects the perceptions of investors, forecasters, and policymakers about the strength or weakness of the economy. These expectations are updated on the basis of regularly occurring surprises in macroeconomic announcement data. The response of asset prices to positive or negative...