Term structure data revolutionizes understanding of inflation and interest rates.
The article combines two economic models to better understand how interest rates and inflation are related. By analyzing data on both the economy and interest rates, the researchers found that changes in inflation targets and natural output rates have a big impact on interest rates. They also discovered that different economic events can cause the entire range of interest rates to shift. Overall, the study shows that understanding the relationship between the economy and interest rates can help predict how they will change in the future.