The role of human error in the yield curve

Investors' systematic forecast errors are an important source of business-cycle variation in measured risk premia, research published by the Atlanta Federal Reserve finds.

The research uses a structural model of the yield curve with data on nominal positions and survey forecasts, to show that risk premia measured by an econometrician vary because of changes in investors' subjective risk premia that are identified from portfolio and subjective beliefs and that investors' subjective beliefs differ

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