Authors: Borel Ahonon and Guillaume Roussellet
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Staff Reports
When Long-Run Trends Are Unknown: Bond Pricing Implications
Number 1187
March 2026
March 2026
JEL classification: C58, E43, E52, G12
We propose a macro-finance model in which inflation, growth, and the policy rate are driven by unobservable long-run trends and transitory cycles that investors must infer from aggregate data. Their subjective estimates of these trends, and the uncertainty surrounding them, are priced into the Treasury yield curve in a tractable way through both interest rate expectations and bond risk premia. Empirical estimates reveal an upward smooth trend in the long-run real interest rate (r-star) until the 1980s, and large investor uncertainty with confidence bands on as wide as 3.4 percentage points, contrasting with the volatile rate implied by perfect information models.
Author Disclosure Statement(s)
Borel Ahonon
I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Guillaume Roussellet
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Guillaume Roussellet
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Ahonon, Borel, and Guillaume Roussellet. 2026. “When Long-Run Trends Are Unknown: Bond Pricing Implications.” Federal Reserve Bank of New York Staff Reports, no. 1187, March. https://doi.org/10.59576/sr.1187
Ahonon, Borel, and Guillaume Roussellet. 2026. “When Long-Run Trends Are Unknown: Bond Pricing Implications.” Federal Reserve Bank of New York Staff Reports, no. 1187, March. https://doi.org/10.59576/sr.1187
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