Download or read book Yield Curve Dynamics and Fiscal Policy Shocks written by Adam Kučera and published by . This book was released on 2022 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that government spending does play a role in shaping the yield curve which has important consequences for the cost of private and government financing. We combine government spending shock identification strategies from the fiscal macro literature with recent advancements in no-arbitrage affine term structure modeling, where we account for time-varying macroeconomic trends in inflation and the equilibrium real interest rate. We stress in our empirical macro-finance framework the importance of timing in the response of yields to government spending. We find that the yield curve responds positively but mildly to a surprise in government spending shocks where the rise in risk-neutral yields is compensated by a drop in nominal term premia. The news shock in expectations about future expenditures decreases yields across all maturities. Complementarily, we also analyze the effect of fiscal policy uncertainty where higher fiscal uncertainty lowers yields.
Download or read book Monetary and Fiscal Policies and the Dynamics of the Yield Curve in Morocco written by Mr.Calixte Ahokpossi and published by International Monetary Fund. This book was released on 2016-08-16 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate the latent factors that underlie the dynamics of the sovereign bond yield curve in Morocco during 2004–14 based on the Dynamic Nelson-Siegel model. On this basis, we explore the interaction between macroeconomic variables and the yield curve, which is of direct relevance to macroeconomic policy-making. In Morocco’s context, we find that tighter monetary policy increases short-end maturities, and that the impact is small and short-lived. Economic activity is also briefly but significantly impacted, suggesting that even under a pegged exchange rate, monetary policy autonomy and effectiveness can be increased through greater central bank independence. Fiscal improvements significantly lower yield levels. Policy conclusions are that improvement in the fiscal and monetary policy frameworks, as well as greater financial sector development and inclusion, could benefit Morocco and strengthen the transmission mechanisms and effectiveness of macroeconomic policies.
Download or read book Fiscal Policy and the Term Structure of Interest Rates written by Qiang Dai and published by . This book was released on 2005 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macroeconomists want to understand the effects of fiscal policy on interest rates, while financial economists look for the factors that drive the dynamics of the yield curve. To shed light on both issues, we present an empirical macro-finance model that combines a no-arbitrage affine term structure model with a set of structural restrictions that allow us to identify fiscal policy shocks, and trace the effects of these shocks on the prices of bonds of different maturities. Compared to a standard VAR, this approach has the advantage of incorporating the information embedded in a large cross-section of bond prices. Moreover, the pricing equations provide new ways to assess the model's ability to capture risk preferences and expectations. Our results suggest that (i) government deficits affect long term interest rates: a one percentage point increase in the deficit to GDP ratio, lasting for 3 years, will eventually increase the 10-year rate by 40--50 basis points; (ii) this increase is partly due to higher expected spot rates, and partly due to higher risk premia on long term bonds; and (iii) the fiscal policy shocks account for up to 12% of the variance of forecast errors in bond yields.
Download or read book The Yield Curve and Financial Risk Premia written by Felix Geiger and published by Springer Science & Business Media. This book was released on 2011-08-17 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt: The determinants of yield curve dynamics have been thoroughly discussed in finance models. However, little can be said about the macroeconomic factors behind the movements of short- and long-term interest rates as well as the risk compensation demanded by financial investors. By taking on a macro-finance perspective, the book’s approach explicitly acknowledges the close feedback between monetary policy, the macroeconomy and financial conditions. Both theoretical and empirical models are applied in order to get a profound understanding of the interlinkages between economic activity, the conduct of monetary policy and the underlying macroeconomic factors of bond price movements. Moreover, the book identifies a broad risk-taking channel of monetary transmission which allows a reassessment of the role of financial constraints; it enables policy makers to develop new guidelines for monetary policy and for financial supervision of how to cope with evolving financial imbalances.
Download or read book Monetary and Fiscal Dynamics written by Michael Carlberg and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: The analysis will be conducted within an IS-LM model augmen- ted by the dynamics of money wages, private capital and public debt. A macroeconomic shock induces an extended process of adjustment that is characterized by unemployment. This in turn requires a dynamic path of monetary and fiscal policy: As a response to the shock, the central bank continuouslyadapts the quantity of money so as to keep up full employment all the time. And the government continuously accommodates its purchases of goods and services. Can this be sustained? Or will public debt tend to explode, thereby driving the stock of capial down to zero?
Download or read book Fiscal Hedging and the Yield Curve written by Hanno Lustig and published by . This book was released on 2005 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We identify a novel, fiscal hedging motive that helps to explain why governments issue more expensive, long-term debt. We analyze optimal fiscal policy in an economy with distortionary labor income taxes, nominal rigidities and nominal debt of various maturities. The government in our model can smooth labor tax rates by changing the real return it pays on its outstanding liabilities. These changes require state contingent inflation or adjustments in the nominal term structure. In the presence of nominal pricing rigidities and a cash in advance constraint, these changes are themselves distortionary. We show that long term nominal debt can help a government hedge fiscal shocks by spreading out and delaying the distortions associated with increases in nominal interest rates over the maturity of the outstanding long-term debt. After a positive spending shock, the government raises the yield curve and steepens it.
Download or read book Equilibrium Yield Curve the Phillips Curve and Monetary Policy written by Mitsuru Katagiri and published by International Monetary Fund. This book was released on 2018-11-09 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Upward sloping yield curves are hard to reconcile with the positive association between income and inflation (the Phillips curve) in consumption-based asset pricing models. Using US and UK data, this paper shows inflation is negatively correlated with long-run income growth but positively correlated with cyclical income, thus enabling the model to replicate positive and sizable term premiums, along with the Phillips curve over business cycles. Quantitative analyses also emphasize the importance of monetary policy, predicting that a permanently low growth and low inflation environment would precipitate flatter yield curves due to constraints to monetary policy around the zero lower bound.
Download or read book Essays on the Yield Curve Its Predictive Power and Monetary Policy written by Hibiki Ichiue and published by . This book was released on 2005 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Yield Curve Dynamics written by Anne Lundgaard Hansen and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Interest rates vary with time horizons. This relationship, known as the term structure of interest rates or the yield curve, contains information about market expectations on future interest rates, inflation, and economic activity; risk attitudes; and recession probabilities. Understanding yield curve dynamics is thus crucial for monetary policy makers and investors to respond appropriately to fluctuations in financial markets and the economy. This thesis addresses key challenges for modeling and interpreting yield curve dynamics. Through three self-contained chapters, I present new methodologies and empirical insights related to the time-series properties of bond yields, risk factors in bond markets, and implications for monetary policy.
Download or read book Monetary Policy Regimes written by Kameliya Filipova and published by . This book was released on 2013 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a multivariate dynamic term structure model, which takes into account the nonlinear (time-varying) relationship between interest rates and the state of the economy. In contrast to the classical term structure literature, where nonlinearities are captured by increasing the number of latent state variables, or by latent regime shifts, in our no-arbitrage framework the regimes are governed by thresholds and are directly linked to economic fundamentals. Specifically, starting from a simple monetary policy model for the short rate, we introduce a parsimonious and tractable model for the yield curve, which takes into account the possibility of regime shifts in the behavior of the Federal Reserve. In our empirical analysis, we show the merit of our approach along the following dimensions: (i) interpretable bond dynamics; (ii) accurate short end yield curve pricing; (iii) yield curve implications.
Download or read book The Effectiveness of Fiscal Policy in Stimulating Economic Activity written by Richard Hemming and published by International Monetary Fund. This book was released on 2002-12 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.
Download or read book Bayesian Multivariate Time Series Methods for Empirical Macroeconomics written by Gary Koop and published by Now Publishers Inc. This book was released on 2010 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bayesian Multivariate Time Series Methods for Empirical Macroeconomics provides a survey of the Bayesian methods used in modern empirical macroeconomics. These models have been developed to address the fact that most questions of interest to empirical macroeconomists involve several variables and must be addressed using multivariate time series methods. Many different multivariate time series models have been used in macroeconomics, but Vector Autoregressive (VAR) models have been among the most popular. Bayesian Multivariate Time Series Methods for Empirical Macroeconomics reviews and extends the Bayesian literature on VARs, TVP-VARs and TVP-FAVARs with a focus on the practitioner. The authors go beyond simply defining each model, but specify how to use them in practice, discuss the advantages and disadvantages of each and offer tips on when and why each model can be used.
Download or read book Yield Curve Modeling and Forecasting written by Francis X. Diebold and published by Princeton University Press. This book was released on 2013-01-15 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt: Understanding the dynamic evolution of the yield curve is critical to many financial tasks, including pricing financial assets and their derivatives, managing financial risk, allocating portfolios, structuring fiscal debt, conducting monetary policy, and valuing capital goods. Unfortunately, most yield curve models tend to be theoretically rigorous but empirically disappointing, or empirically successful but theoretically lacking. In this book, Francis Diebold and Glenn Rudebusch propose two extensions of the classic yield curve model of Nelson and Siegel that are both theoretically rigorous and empirically successful. The first extension is the dynamic Nelson-Siegel model (DNS), while the second takes this dynamic version and makes it arbitrage-free (AFNS). Diebold and Rudebusch show how these two models are just slightly different implementations of a single unified approach to dynamic yield curve modeling and forecasting. They emphasize both descriptive and efficient-markets aspects, they pay special attention to the links between the yield curve and macroeconomic fundamentals, and they show why DNS and AFNS are likely to remain of lasting appeal even as alternative arbitrage-free models are developed. Based on the Econometric and Tinbergen Institutes Lectures, Yield Curve Modeling and Forecasting contains essential tools with enhanced utility for academics, central banks, governments, and industry.
Download or read book Hysteresis and Business Cycles written by Ms.Valerie Cerra and published by International Monetary Fund. This book was released on 2020-05-29 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.
Download or read book Yield Curve Dynamics and Spillovers in Central and Eastern European Countries written by Ms.Anita Tuladhar and published by International Monetary Fund. This book was released on 2010-02-01 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper applies the models used to study yield curve dynamics and spillovers in the U.S. and other countries to Central and Eastern European countries (CEE countries). Using the Diebold, Rudebusch, and Aruoba (2006) dynamic version of the Nelson-Siegel representation of the yield curve, the paper finds that the two-way relationship between macroeconomic and financial variables in the CEE countries is similar to the one in mature economies. However, inflation shocks have very little persistence in the CEE countries, owing to the strong convergence trends in these countries-which tend to re-anchor expectations faster. Increased convergence in policies and market integration over time are associated with a stronger correlation between the levels of the yield curves, while the curves slopes are more driven by idiosyncratic factors. Shifts in the euro yield curve are transmitted both to interest rates and inflation expectations in the CEE countries-and transmission is stronger after 2004.
Download or read book Fiscal Policy and the Current Account written by International Monetary Fund and published by International Monetary Fund. This book was released on 2010-05-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between fiscal policy and the current account, drawing on a larger country sample than in previous studies and using panel regressions, vector autoregressions, and an analysis of large fiscal and external adjustments. On average, a strengthening in the fiscal balance by 1 percentage point of GDP is associated with a current account improvement of 0.2–0.3 percentage point of GDP. This association is as strong in emerging and low-income countries as it is in advanced economies; and significantly higher when output is above potential.
Download or read book NBER Macroeconomics Annual 2006 written by Daron Acemoglu and published by MIT Press. This book was released on 2007 with total page 495 pages. Available in PDF, EPUB and Kindle. Book excerpt: This 21st edition of the NBER Macroeconomics Annual treats many questions at the cutting edge of macroeconomics that are central to current policy debates. The first four papers and discussions focus on such current macroeconomic issues as how structural-vector-autoregressions help identify sources of business cycle fluctuations and the evolution of U.S. macroeconomic policies. The last two papers analyze theoretical developments in optimal taxation policy and equilibrium yield curves. Daron Acemoglu is Charles P. Kindleberger Professor of Applied Economics at MIT. Kenneth Rogoff is Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University. Michael Woodford is John Bates Clark Professor of Political Economy at Columbia University. All three are Research Associates of the National Bureau of Economic Research.
