Federal Reserve researchers have released a study that examines how equity yields react to a long‑run growth shock. The paper, titled “The Response of Equity Yields to a Long‑Run Shock,” was authored by Martijn Boons, Anthony M. Diercks, Petra Sinagl, and Andrea Tamoni and is part of the 2026 Finance and Economics Discussion Series. Using synthetic equity yield data from Giglio et al. (2024), the authors show that a positive long‑run shock steepens the equity yield curve by raising expected dividend growth while discount rates remain largely unchanged. Growth‑firm yields respond more strongly than value‑firm yields, reflecting larger changes in expected dividend growth. The modified Ai et al. (2018) model best matches these responses compared with other benchmark equity term‑structure models. DOI: https://doi.org/10.17016/FEDS.2026.044
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