Title page
Contents
Abstract 2
1. Introduction 3
2. Decomposing the Yield Curve 6
2.1. Data 6
2.2. The Standard Model 7
2.3. A Decomposition into Expected Short Rates and Term Premiums 10
3. Reconsidering the Standard Decomposition 10
3.1. Replicating the Standard Decomposition 10
3.2. An Alternative Decomposition Using Rolling or Recursive Real-time Samples 14
4. Implications of the Alternative Decomposition 17
4.1. How much of the changes in long-term yields over various periods owes to term premiums? 17
4.2/4.1. How important is the long-run equilibrium level of short-term rates for yield curve movements? 19
5. Conclusion 21
6. References 22
Data Appendix 24
Table 1. Correlation of weekly term premium estimates, December 31, 1991 to December 25, 2023 13
Figure 1. Yields on Treasury securities of different maturities, January 1962-December 2023 7
Figure 2. Alternative estimates of term premiums, December 31, 1991 to December 29, 2023 12
Figure 3. Term premiums estimated using weekly or monthly data, December 1991 to December 2023 13
Figure 4. Term premiums from full sample, rolling, and recursive approaches January 1992 to December 2023 15
Figure 5. The 10-year Treasury yield and estimates of the long-run average of one-year Treasury yields 17
Figure 6. Decomposition of change in 10-yr Treasury yield over various periods 19
Figure 7. One-sided estimates of long-run short-term interest rates: Summary of Economic Projections and average of one-yr. Treasury yield over rolling... 21