Yes, mostly. It represents the yield that market participants think will be equivalent to the ahort-run interest rates over that time period. That's why people get nervous when there's an inverted yield curve because that means the market thinks short term interest rates are likely to decrease in the future, probably because the Fed reduced the interest rates due to a potential recession. But we also have to factor in expected inflation. If inflation is expected to decrease, that could also give us an inverted nominal yield curve.
i never understood the IS LM curve until now thank you so much!!!
I'm glad you've found it helpful.
Hi Liam,
Does a US treasury yield curve, say 1y to 10y, represent a market view of "medium term" LM curve?
Yes, mostly. It represents the yield that market participants think will be equivalent to the ahort-run interest rates over that time period. That's why people get nervous when there's an inverted yield curve because that means the market thinks short term interest rates are likely to decrease in the future, probably because the Fed reduced the interest rates due to a potential recession. But we also have to factor in expected inflation. If inflation is expected to decrease, that could also give us an inverted nominal yield curve.
Hey Liam,
Thank you very much for this Video! It helps a lot. Can you tell me, if there is any, which book you work along for this course?
I use the Blanchard book, "Macroeconomics" which is currently on its 8th edition (although these are based on the 7th edition).
@@liammalloy Great thanks for the quick reply!