Episode notes
Episode Notes: The Term Premium Puzzle and its Macroeconomic Implications
Read more- Introduction:
- Topic: The term premium puzzle and its relevance in macroeconomics and central banking.
- Definition: Observation that long-term bond yields are higher than short-term ones, even after inflation adjustments.
- Why It's a Puzzle:
- Standard Economic Theory: Investors should need compensation for added risks in long-term bonds.
- Empirical Evidence: Term premium (difference between long-term bond yield and expected future short-term interest rates) is positive and sizable.
- Significance for Policy Makers: High or low term premium has implications for economic growth and financia ...