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Author: John H. Cochrane
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
We construct an affine model that incorporates bond risk premia. By understanding risk premia, we are able to use a lot of information from well-measured risk-neutral dynamics to characterize real expectations. We use the model to decompose the yield curve into expected interest rate and risk premium components. We characterize the interesting term structure of risk premia -- a forward rate reflects expected excess returns many years into the future, and current slope and curvature factors forecast future expected returns even though they do not forecast current returns.
Author: John H. Cochrane
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
We construct an affine model that incorporates bond risk premia. By understanding risk premia, we are able to use a lot of information from well-measured risk-neutral dynamics to characterize real expectations. We use the model to decompose the yield curve into expected interest rate and risk premium components. We characterize the interesting term structure of risk premia -- a forward rate reflects expected excess returns many years into the future, and current slope and curvature factors forecast future expected returns even though they do not forecast current returns.
Author: Arne Halberstadt
Publisher:
ISBN: 9783957298355
Category :
Languages : en
Pages :
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Book Description
Author: Joseph Byrne
Publisher:
ISBN:
Category :
Languages : en
Pages : 61
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Book Description
This paper studies the co-movement of global yield curve dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. Our data-driven approach is able to pin down the drivers of yield curve dynamics and produce plausible term premium estimates. We reveal the relative importance of global shocks through two transmission channels: policy and risk channels. Global inflation is the most important core macro fundamental affecting international yields, operating through a policy channel. Two identified global yield factors significantly influence global yield co-movements through a risk channel.
Author: Ferre De Graeve
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We estimate a medium-scale macro-finance DSGE model of the term structure. By expanding the macro part of macro-finance models, historical fluctuations in US bond yields turn out to be largely consistent with the rational expectations hypothesis. This stands in contrast to extant macro-finance models and suggests that their - small-scale or non-structural - perspective on the macroeconomy mutes expectations, thereby underestimating the expectations hypothesis' potential. Out-of-sample forecasts are competitive with more flexible models of the yield curve. We interpret various episodes through the lens of the model. The inflation hike in the mid-seventies was predominantly the result of markup shocks to wages and prices, while monetary policy's commitment to fighting inflation was largely credible. Although the Fed succeeded in bringing down inflation in the early eighties, it had less success in lowering inflation expectations. The model suggests the mid 2000 non-response of long rates to monetary policy is a to a large extent the logical consequence of the Fed's response to demand-type shocks hitting the economy. Finally, the paper investigates which structural shocks cause the yield curve to contain information about future growth.
Author: Swati Mital
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
Affine Term Structure model that unifies two views in yield curve modeling: Principal Components as state variables in Affine world of models providing indispensable econometric knowledge of market observed yields and Stochastic Market Price of Risk which decouples the hard deterministic relationship between risk premium and return predicting factors.
Author: Hans Dewachter
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
We revisit the common practice of using yield spreads to forecast inflation. We address two main issues. First, we assess the importance of decomposing yield spreads into an expectations and a term premium component in order to predict inflation. Second, we quantify the impact of financial shocks in the dynamics of each of these components. The yield spread decomposition is achieved with the use of a no-arbitrage macro-ጿinance model incorporating both macroeconomic and financial factors. The model is applied to the U.S. economy and estimated with Bayesian techniques. We ጿind that the yield spread decomposition is crucial to forecast inflation for most forecasting horizons. Also, the inclusion of control variables such as the short-term interest rate and lagged dependent variable does not drive out the predictive power of the yield spread decomposition.
Author: Hans Dewachter
Publisher:
ISBN:
Category :
Languages : en
Pages : 29
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Book Description
Author: John H. Cochrane
Publisher: Now Publishers Inc
ISBN: 1933019158
Category : Business & Economics
Languages : en
Pages : 117
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Book Description
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Author: Richard Finlay
Publisher:
ISBN:
Category : Government securities
Languages : en
Pages : 38
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Book Description
"We use data on coupon-bearing Australian Government bonds and overnight indexed swap (OIS) rates to estimate risk-free zero-coupon yield and forward curves for Australia from 1992 to 2007. These curves, and analysts? forecasts of future interest rates, are then used to fit an affine term structure model to Australian interest rates, with the aim of decomposing forward rates into expected future overnight cash rates plus term premia. The expected future short rates derived from the model are on average unbiased, fluctuating around the average of actual observed short rates. Since the adoption of inflation targeting and the entrenchment of low and stable inflation expectations, term premia appear to have declined in levels and displayed smaller fluctuations in response to economic shocks. This suggests that the market has become less uncertain about the path of future interest rates. Towards the end of the sample period, term premia have been negative, suggesting that investors may have been willing to pay a premium for Commonwealth Government securities. Due to the complexity of the model and the difficulty of calibrating it to data, the results should not be interpreted too precisely. Nevertheless, the model does provide a potentially useful decomposition of recent changes in the expected path of interest rates and term premia."--Reserve Bank of Australia web site.
Author: Jagjit S. Chadha
Publisher: Cambridge University Press
ISBN: 1107044553
Category : Business & Economics
Languages : en
Pages : 571
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Book Description
State-of-the-art research from academics and policymakers on the role of and challenges to monetary policy during the ongoing financial crisis.
