bounded rationality

Categorical Thinking about Interest Rates

We identify a common misconception that expected future changes in short-term interest rates predict corresponding future changes in long-term interest rates. People forecast similar shapes for the paths of short and long rates over the next four …

Under- and Overreaction in Yield Curve Expectations

I document a robust pattern in how Treasury market participants' yield curve expectations respond to new information: forecasts for short-term rates underreact to news while forecasts for long-term rates overreact. I propose a new explanation of this …