Yield curve models reveal insights on interest rate dynamics and macroeconomics.
The article explores how interest rates change over time using two-factor models. The researchers found that short-term bond yields are influenced by inflation and the Federal Reserve's target rate, while long-term yields are mainly affected by the Federal Reserve's target rate. The models show that short-term yields revert to their average faster than long-term yields, suggesting different factors drive interest rate movements at different points along the yield curve.