The stylized facts about yield curves can be reasonably explained by the liquidity premium theory of yield curves are yield curves tend to move in parallel;
The liquidity premium theory suggests that changes in interest rates impact both short-term and long-term rates. When interest rates rise or fall, the entire yield curve is expected to shift in parallel.
This is because the liquidity premium is influenced by changes in overall interest rate levels. If short-term rates increase, the liquidity premium for long-term bonds also tends to rise, leading to an upward shift in the entire yield curve. Conversely, if short-term rates decrease, the liquidity premium decreases, resulting in a downward shift in the yield curve.
Complete question
Which of these stylized facts about yield curves can be reasonably explained by the liquidity premium theory of yield curves?
the yield curve normally slopes upwards
yield curves tend to move in parallel;
The yield curve shifts up and down as interest rate levels rise and fall,