2  BIS central bankers’ speeches  why Treasury term premiums are now near historic lows, on the order of minus 80 basis points, according to a well-known model used by the Board staff.5 A central theme of my talk today is this: When policy works by moving term premiums, as opposed to moving expectations about the path of short rates, the transmission to the real economy may be altered in subtle yet important ways that can have implications for the benefits of a policy action, its costs, and even its consequences for financial stability.
Moreover, to address these issues, we need to understand not only by how much an LSAP moves term premiums, but also why it does so. It should be noted that many standard macro models completely set aside the distinction I am emphasizing here.