The rational expectation dynamics of a model for the term structure and monetary policy

In the present paper we set up a rational expectation model for the interaction between the expectation theory of the term structure, monetary policy and a time-varying premium. The results we obtain allow to conclude that the information content of the spread over the short/long rate depends onwhether or not the joint working of monetary policy and the time-varyingterm premium, which is peculiar to our model, exactly compensate the classicalimplication of the Expectation Theory. So our results can rationalise regression testsobtaining small or even negative values for the spread coefficient.