As another example, numerous studies of the effects of the Federal Reserve’s asset purchases suggest that these operations have reduced the level of the term premium embedded in long-term interest rates.
If aggregate demand depends primarily on the level of long-term interest rates, it might be possible, in principle, to maintain a level of long-term rates consistent with full employment and stable prices by lowering term premiums while at the same time raising the level of short-term rates by a compensating amount.