The yield curve (wonkish) - Paul Krugman Blog - NYTimes.com - The Diigo Meta page

• 12 Jun 10
  

  W21st NYC

  yield spreads-the significance credit crisis legacy yield curve fallacy interest rate - yield curve fallacy option value

• 06 Jan 09
  

  Charlie Gibbons

  macro finance

  • The reason for the historical relationship between the slope of the yield curve and the economy’s performance is that the long-term rate is, in effect, a prediction of future short-term rates. If investors expect the economy to contract, they also expect the Fed to cut rates, which tends to make the yield curve negatively sloped. If they expect the economy to expand, they expect the Fed to raise rates, making the yield curve positively sloped.

     

    But here’s the thing: the Fed can’t cut rates from here, because they’re already zero. It can, however, raise rates. So the long-term rate has to be above the short-term rate, because under current conditions it’s like an option price: short rates might move up, but they can’t go down.
• 27 Dec 08
  

  T. Rex Bean

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