DP13176 Notes on the Yield Curve
|Author(s):||Ian Martin, Stephen Ross|
|Publication Date:||September 2018|
|Keyword(s):||Cheeger inequality, eigenvalue gap, recovery theorem, term structure, traps, Yield Curve|
|Programme Areas:||Financial Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13176|
We study the properties of the yield curve under the assumptions that (i) the fixed-income market is complete and (ii) the state vector that drives interest rates follows a finite discrete-time Markov chain. We focus in particular on the relationship between the behavior of the long end of the yield curve and the recovered time discount factor and marginal utilities of a pseudo-representative agent; and on the relationship between the "trappedness" of an economy and the convergence of yields at the long end.