This paper presents an essentially affine model of the term structure of interest rates making use of macroeconomic factors and their long-run expectations. The model extends the approach pioneered by Kozicki and Tinsley (2001) by modeling consistently long-run inflation expectations simultaneously with the term structure. This model thus avoids the standard pre-filtering of long-run expectations, as proposed by Kozicki and Tinsley (2001). Application to the U.S. economy shows the importance of long-run inflation expectations in the modelling of long-term bonds. The paper also provides a macroeconomic interpretation for the factors found in a latent factor model of the term structure. More specifically, we find that the standard "level" factor is highly correlated to long-run inflation expectations, the "slope" factor captures temporary business cycle conditions, while the "curvature" factor represents a clear independent monetary policy factor.

This paper presents an essentially affine model of the term structure of interest rates making use of macroeconomic factors and their long-run expectations. The model extends the approach pioneered by Kozicki and Tinsley (2001) by modeling consistently long-run inflation expectations simultaneously with the term structure. Application to the U.S. economy shows the importance of long-run inflation expectations in the modeling of long-term bond yields. The paper also provides a macroeconomic interpretation for the latent factors found in standard finance models of the yield curve: the level factor represents the long-run inflation expectation of agents; the slope factor captures business cycle conditions; and the curvature factor expresses a clear independent monetary policy factor.

We analyze how time-varying bank-specific capital requirements affect banks' balance sheet adjustments as well as bank lending to the non-financial corporate sector. To do so, we relate Pillar 2 capital requirements to bank balance sheet data, a fully documented corporate credit register and firm balance sheet data. Our analysis consists of three components. First, we examine how time-varying bank-specific capital requirements affect banks' balance sheet composition. Subsequently, we investigate how capital requirements affect the supply of bank credit to the corporate sector, both on the intensive and extensive margin, as well as for different types of credit. Finally, we document how bank characteristics, firm characteristics and the stance of monetary policy impact the relationship between bank capital requirements and credit supply.

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