Download or read book Essays on Macro finance Affine Term Structure Models written by Biancen Xie and published by . This book was released on 2019 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my dissertation, I focus on theoretical affine term structure models and the development of Bayesian econometric methods to estimate them.In the first Chapter, we address the question of which unspanned macroeconomic factors are the best in the class of macro-finance Gaussian affine term structure models. To answer this question, we extend Joslin, Priebsch, and Singleton (2014) in two dimensions. First, following Ang and Piazzesi (2003) and Chib and Ergashev (2009), three latent factors, instead of the first three principal components of the yield curve, are used to represent the level, slope and curvature of the yield curve. Second we postulate a grand affine model that includes all the macro-variables in contention. Specific models are then derived from this grand model by letting each of the macro-variables play the role of a relevant macro factor (i.e. by affecting the time-varying market price of factor risks), or the role of an irrelevant macro factor (having no effect on the market price of factor risks). The Bayesian marginal likelihoods of the resulting models are computed by an efficient Markov chain Monte Carlo algorithm and the method of Chib (1995) and Chib and Jeliazkov (2001). Given eight common macro factors, our comparison of 28=256 affine models shows that the most relevant macro factors for the U.S. yield curve are the federal funds rate, industrial production, total capacity utilization, and housing sales. We also show that the best supported model substantially improves out-of-sample yield curve forecasting and the understanding of term-premium.The second Chapter considers the question of which unspanned macro factors can improve prediction in arbitrage-free affine term structure models and convert return forecasts into economic gains. To achieve this, we develop a Bayesian framework for incorporating different combinations of macro variables within an affine term structure framework. Then each specific model within the framework is evaluated statistically and economically. For the statistical evaluation, we examine its out-of-sample yield density forecasting. The economic value of each model is compared in terms of the bond portfolio choice of a Bayesian risk- averse investor. We consider two main kinds of macro factors: representative macro factors in Chib et al. (2019) and principal component macro factors in Ludvigson and Ng (2009b). Our empirical results show that regardless of macro dataset we use(either Chib et al. (2019) or Ludvigson and Ng (2009b)), macro factor in real economic activity, financial sector and price index will help generate notable gains in out-of-sample forecast. Such gains in predictive accuracy translate into higher portfolio returns after accounting for estimation error and model uncertainty. In contrast, incorporating redundant macro variables into the affine term structure models can even decrease utility and prediction accuracy for investors. In addition, given the data sample we consider in the Chapter, we also find that principle component factors can perform relatively better than representative macro factors in terms of certainty equivalence return (CER).The third Chapter compares the posterior sampling performance of No-U-Turn sam- pler(NUTS) algorithm and tailored randomized-blocking Metropolis-Hastings (TaRB-MH) for macro-finance affine Term structure models. We conduct empirical experiments on 3 affine term structure models with the U.S. yield curve data. For each experiment, we examine the sampling efficiency of model parameters, factors, term premium, predictive yields,etc. Our emprical results indicate that the TaRB-MH substantially outperforms the NUTS methodin terms of the convergence and efficiency in posterior sampling. Furthermore, we show that NUTS' inefficiency in simulating the affine term structure models will be robust given different initial values for the algorithm.

Download or read book Essays on Macroeconomic Policy Affine Term Structure Models written by Vicente Jakas and published by . This book was released on 2013 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Macro finance Identification Estimation and Forecasting of Term Structure Models with Macro Factors and Default Risk written by Marco S. Matsumura and published by . This book was released on 2009 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Affine Term Structure Models written by Bovorn Vichiansin and published by . This book was released on 2006 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Macro finance Asset Pricing Models and Estimation written by Kyu Ho Kang and published by . This book was released on 2010 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my dissertation, I focus on theoretical asset pricing models and the development of Bayesian econometric methods to estimate them, particularly in the area of bond pricing. The first essay theoretically and empirically examines structural changes in a dynamic term-structure model of zero-coupon bond yields. To do this, we develop a new arbitrage-free one latent and two macro-economics factor affine model to price default-free bonds when all model parameters are subject to change at unknown time points. The bonds in our set-up can be priced straightforwardly once the change-point model is formulated as a specific unidirectional Markov process. We consider five versions of our general model - with 0, 1, 2, 3 and 4 change-points - to a collection of 16 yields measured quarterly over the period 1972:I to 2007:IV. Our empirical approach to inference is fully Bayesian with priors set up to reflect the assumption of a positive term-premium. The use of Bayesian techniques is particularly relevant because the models are high-dimensional and non-linear, and because it is more straightforward to compare our different change-point models from the Bayesian perspective. Our estimation results indicate that the model with 3 change-points is most supported by the data and that the breaks occurred in 1980:II, 1985:IV and 1995:II. These dates correspond (in turn) to the time of a change in monetary policy, the onset of what is termed the great moderation, and the start of technology driven period of economic growth. We also utilize the Bayesian framework to derive the out-of-sample predictive densities of the term-structure. We find that the forecasting performance of the 3 change-point model is substantially better than that of the other models we examine. In the second essay, we develop and estimate a model of the term structure of interest rates within the context of a Dynamic Stochastic General Equilibrium model. The model features multiple monetary policy and volatility regimes. We estimate this model by Bayesian methods. Our estimation results reveal that U.S. monetary policy has become ``more active'' since 1995:Q2, that during this period, the average term premium has fallen, and that the price of regime shift risk is always significantly positive over time. These findings highlight the important role that general equilibrium modeling can play in understanding the complex dynamics of the term structure.

Download or read book Essays on Macro finance Relationships written by Azamat Abdymomunov and published by . This book was released on 2010 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my dissertation, I study relationships between macroeconomics and financial markets. In particular, I empirically investigate the links between key macroeconomic indicators, such as output, inflation, and the business cycle, and the pricing of financial assets. The dissertation comprises three essays. The first essay investigates how the entire term structure of interest rates is influenced by regime-shifts in monetary policy. To do so, we develop and estimate an arbitrage-free dynamic term-structure model which accounts for regime shifts in monetary policy, volatility, and the price of risk. Our results for U.S. data from 1985-2008 indicate that (i) the Fed's reaction to inflation has changed over time, switching between "more active" and "less active" monetary policy regimes, (ii) the yield curve in the "more active" regime was considerably more volatile than in the "less active" regime, and (iii) on average, the slope of the yield curve in the "more active" regime was steeper than in the "less active" regime. The steeper yield curve in the "more active" regime reflects higher term premia that result from the risk associated with a more volatile future short-term rate given a more sensitive response to inflation. The second essay examines the predictive power of the entire yield curve for aggregate output. Many studies find that yields for government bonds predict real economic activity. Most of these studies use the yield spread, defined as the difference between two yields of specific maturities, to predict output. In this paper, I propose a different approach that makes use of information contained in the entire term structure of U.S. Treasury yields to predict U.S. real GDP growth. My proposed dynamic yield curve model produces better out-of-sample forecasts of real GDP than those produced by the traditional yield spread model. The main source of this improvement is in the dynamic approach to constructing forecasts versus the direct forecasting approach used in the traditional yield spread model. Although the predictive power of yield curve for output is concentrated in the yield spread, there is also a gain from using information in the curvature factor for the real GDP growth prediction. The third essay investigates time variation in CAPM betas for book-to-market and momentum portfolios across stock market volatility regimes. For our analysis, we jointly model market and portfolio returns using a two-state Markov-switching process, with beta and the market risk premium allowed to vary between "low" and "high" volatility regimes. Our empirical findings suggest strong time variation in betas across volatility regimes in most of the cases for which the unconditional CAPM can be rejected. Although the regime-switching conditional CAPM can still be rejected in many cases, the time-varying betas help explain portfolio returns much better than the unconditional CAPM, especially when market volatility is high.

Download or read book Term Structure of Interest Rates written by Zbynek Stork and published by LAP Lambert Academic Publishing. This book was released on 2014-07-08 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macro-finance modelling is an increasingly popular topic. Various approaches have been developing rapidly, usually using econometric techniques. This book focuses on structural approach to an analysis of average yield curve and its dynamics using macroeconomic factors. An underlying model is based on basic Dynamic Stochastic General Equilibrium (DSGE) approach. Log-linearized solution of the model is the key for derivation of yield curve and its main determinants - pricing kernel, price of risk and affine term structure of interest rates - based on no-arbitrage assumption. The book presents a consistent derivation of a structural macro-finance model, with a reasonable computational burden that allows for time varying term premia. A simple VAR model, widely used in macro-finance literature, serves as a benchmark. The two models are briefly compared and analysis shows their ability to fit an average yield curve observed from the data. It also presents a possible importance of this issue for monetary and fiscal institutions. The book should help shed some light on the use of DSGE framework within macro-finance modelling and should be useful for students and researchers in this field.

Download or read book An Affine Macro finance Term Structure Model for the Euro Area written by Wolfgang Lemke and published by . This book was released on 2007 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: A joint model of macroeconomic and term structure dynamics is specified and estimated for the euro area. The model comprises a backward-looking Phillips curve, a dynamic IS equation, a monetary policy rule as well as a specification of the dynamics of trend growth and the natural real interest rate. Under the condition of no arbitrage, yields of all maturities are affine functions of the macroeconomic driving forces. With the exception of a shock to potential output growth, the response of short-term yields to macroeconomic shocks is generally stronger than that of long-term yields. Impulse responses of all bond yields are fairly persistent, which reflects the persistence of their macroeconomic driving forces. Across the whole maturity spectrum, about ninety percent of the variationin yields is explained jointly by monetary policy shocks and shocks to the natural real rate of interest; the relative contribution of the latter shock increases with time to maturity. Cost-push shocks explain at most eight percent, while shocks to the output gap play an even less important role.

Download or read book A Macro finance Approach to the Term Structure of Interest Rates written by Marcelo Ferman and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contributes to the literature that analyses the term structure of interest rates from a macroeconomic perspective. Chapter 1 studies the transmission of monetary policy shocks to the US macroeconomy and term structure. Based on estimates of a Macro-Affine model, it shows that monetary policy shocks trigger relevant movements in bond premia, which in turn feed back into the macroeconomy. This channel of monetary transmission shows up importantly in the pre-Volcker period, but becomes irrelevant later. This chapter concludes with an analysis of the macroeconomic implications of shocks to expectations about future monetary policy actions. Chapter 2 proposes a regime-switching approach to explain why the U.S. nominal yield curve on average has been steeper since the mid-1980s than during the Great Inflation of the 1970s. It shows that, once the possibility of regime switches in the short-rate process is incorporated into investors' beliefs, the average slope of the yield curve generally will contain a new component called 'level risk'. Level risk estimates were found to be large and negative during the Great Inflation, but became moderate and positive afterwards. These findings are replicated in a Markov-Switching DSGE model, where the monetary policy rule shifts between an active and a passive regime with respect to inflation fluctuations. Chapter 3 develops a DSGE model in which banks use short-term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms borrow in order to finance their capital stock which they only adjust at infrequent intervals. The model shows that maturity transformation in the banking sector in general attenuates the output response to a technological shock. Implications of long-term nominal contracts are also examined in a New Keynesian version of the model. In this case, maturity transformation reduces the real effects of a monetary policy shock.

Download or read book Examining Simple Joint Macroeconomic and Term Structure Models written by David Jamieson Bolder and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Macro Finance Model of the Term Structure Monetary Policy and the Economy written by Glenn D. Rudebusch and published by . This book was released on 2004 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this new empirical formulation, we obtain several important results: (1) the latent term structure factors from finance no-arbitrage models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the Federal Reserve, and (3) both forward-looking and backward-looking elements play important roles in macroeconomic dynamics.

Download or read book Essays in Honour of Fabio Canova written by Juan J. Dolado and published by Emerald Group Publishing. This book was released on 2022-09-21 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt: Both parts of Volume 44 of Advances in Econometrics pay tribute to Fabio Canova for his major contributions to economics over the last four decades.

Download or read book Essays on Macro finance and the Yield Curve written by Alex Dean Waters and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Testable Implications of Affine Term Structure Models written by James D. Hamilton and published by . This book was released on 2011 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Affine term structure models have been used to address a wide range of questions in macroeconomics and finance. This paper investigates a number of their testable implications which have not previously been explored. We show that the assumption that certain specified yields are priced without error is testable, and find that the implied measurement or specification error exhibits serial correlation in all of the possible formulations investigated here. We further find that the predictions of these models for the average levels of different interest rates are inconsistent with the observed data, and propose a more general specification that is not rejected by the data

Download or read book Essays in Honor of Jerry Hausman written by Badi H. Baltagi and published by Emerald Group Publishing. This book was released on 2012-12-17 with total page 576 pages. Available in PDF, EPUB and Kindle. Book excerpt: Aims to annually publish original scholarly econometrics papers on designated topics with the intention of expanding the use of developed and emerging econometric techniques by disseminating ideas on the theory and practice of econometrics throughout the empirical economic, business and social science literature.

Download or read book Challenges in Macro finance Modeling written by Don H. Kim and published by . This book was released on 2007 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses various challenges in the specification and implementation of "macro-finance" models in which macroeconomic variables and term structure variables are modeled together in a no-arbitrage framework. I classify macro-finance models into pure latent-factor models ("internal basis models") and models which have observed macroeconomic variables as state variables ("external basis models"), and examine the underlying assumptions behind these models. Particular attention is paid to the issue of unspanned short-run fluctuations in macro variables and their potentially adverse effect on the specification of external basis models. I also discuss the challenge of addressing features like structural breaks and time-varying inflation uncertainty. Empirical difficulties in the estimation and evaluation of macro-finance models are also discussed in detail.

Download or read book Zero Lower Bound Term Structure Modeling written by L. Krippner and published by Springer. This book was released on 2015-01-05 with total page 436 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nominal yields on government debt in several countries have fallen very near their zero lower bound (ZLB), causing a liquidity trap and limiting the capacity to stimulate economic growth. This book provides a comprehensive reference to ZLB structure modeling in an applied setting.