The New Keynesian Model and Bond Yields
Year: 2025
Type: article
Abstract: This article presents a New Keynesian model to capture the linkages between macro fundamentals and the nominal yield curve. The model explains bond yields with a low level of news in expected inflation and plausible term premia. This implies that the slope of the yield curve predicts future bond yields and that risk-adjusted historical bond yields satisfy the expectations hypothesis. The model also explains the spanning puzzle, matches key moments for real bond yields, captures the evolution of the price-dividend ratio, and implies that the slope of the yield curve and the price-dividend ratio forecast excess equity returns.
Author: Martin M. Andreasen
Institution: Aarhus University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4408452408