Some have argued that Treasury yields have been pushed down by lower longer-run expectations of the safe, short-term real interest rate-that is, by a drop in the so-called equilibrium or natural rate of interest. We examine this possibility using an arbitrage-free dynamic term structure model estimated directly on prices of individual inflation-indexed bonds with adjustments for real term and liquidity risk premiums. We find that a lower expected short real rate has accounted for about 2

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... age points of the general downtrend in yields over the past two decades and that this situation seems unlikely to reverse quickly. JEL Classification: C32, E43, E52, G12