The article introduces a new way to test how the difference between long and short-term interest rates can predict future changes in long-term rates, considering term premium effects. They use a model that includes three hidden variables to account for the term premium's impact on interest rates. By using a new method to handle errors in interest rate data, they show that this model accurately captures the term premium's fluctuations in long-term rates, explaining why the term spread sometimes fails to forecast these changes.