bounded rationality

Categorical Thinking about Interest Rates

Rational expectations imply that the current long-term interest rate should already incorporate public knowledge of anticipated increases in short rates. Yet, there is a widespread misconception that expected future shifts in the short rate forecast …

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 …