Abstract
This paper explores the term structure of interest rates implied by a stochastic endogenous growth model with imperfect price adjustment. The production and pricesetting decisions of rms drive low-frequency movements in growth and ination rates that are negatively related. With recursive preferences, these growth and ination dynamics are crucial for rationalizing key stylized facts in bond markets. When calibrated to macroeconomic data, the model quantitatively explains the means and volatilities of nominal bond yields and the failure of the expectations hypothesis.
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