IMF paper uses monetary model to explain term premium

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An International Monetary Fund working paper, published on April 3, argues that risk in the functioning of markets and in the liquidity of assets may generate a term premium – an excess of yield on long-term bonds over short-term bonds.

The paper – Monetary Transaction Costs and the Term Premium, by Raphael Espinoza and Dimitrios Tsomocos – says that asset prices depend on "both the supply of the liquidity by the central bank and the liquidity of assets and commodities".

Notably, the paper says

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