Download or read book Developments in Macro Finance Yield Curve Modelling written by Jagjit S. Chadha and published by Cambridge University Press. This book was released on 2014-02-06 with total page 571 pages. Available in PDF, EPUB and Kindle. Book excerpt: Changes in the shape of the yield curve have traditionally been one of the key macroeconomic indicators of a likely change in economic outlook. However, the recent financial crises have created a challenge to the management of monetary policy, demanding a revision in the way that policymakers model expected changes in the economy. This volume brings together central bank economists and leading academic monetary economists to propose new methods for modelling the behaviour of interest rates. Topics covered include: the analysis and extraction of expectations of future monetary policy and inflation; the analysis of the short-term dynamics of money market interest rates; the reliability of existing models in periods of extreme market volatility and how to adjust them accordingly; and the role of government debt and deficits in affecting sovereign bond yields and spreads. This book will interest financial researchers and practitioners as well as academic and central bank economists.

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 Developments in Macro Finance Yield Curve Modelling written by Jagjit S. Chadha and published by Cambridge University Press. This book was released on 2014-02-06 with total page 571 pages. Available in PDF, EPUB and Kindle. Book excerpt: State-of-the-art research from academics and policymakers on the role of and challenges to monetary policy during the ongoing financial crisis.

Download or read book The Yield Curve and New Developments in Macro finance written by Jagjit Chadha and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Macro Factors and the Yield Curve written by Peyron Law and published by . This book was released on 2005 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Practitioner s Guide to Discrete Time Yield Curve Modelling written by Ken Nyholm and published by Cambridge University Press. This book was released on 2021-01-07 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Element is intended for students and practitioners as a gentle and intuitive introduction to the field of discrete-time yield curve modelling. I strive to be as comprehensive as possible, while still adhering to the overall premise of putting a strong focus on practical applications. In addition to a thorough description of the Nelson-Siegel family of model, the Element contains a section on the intuitive relationship between P and Q measures, one on how the structure of a Nelson-Siegel model can be retained in the arbitrage-free framework, and a dedicated section that provides a detailed explanation for the Joslin, Singleton, and Zhu (2011) model.

Download or read book Dynamic Factor Models in Macro finance written by David Scherrer and published by . This book was released on 2011 with total page 218 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macroeconomic concepts such as in ation and real economic activity are not directly observed. Researchers often use factor models in order to measure these unobserved concepts. The underlying view is that a small number of factors exist which represent the concept and drive many related variables. Consequently, the U.S. economy is often modeled as an a ne function of some factors. If indeed there is such a factor structure for the U.S. economy, then it can be represented by a generalized dynamic factor model (GDFM). In the rst chapter, I describe and summarize the literature on GDFMs. In the second chapter, I investigate the interactions and mutually independent dynamics of changes in in ation and real growth by applying the GDFM to a block of real growth variables, a block of in ation variables, and to their joint panel. In this manner, an empirical decomposition of the U.S. economy is obtained and this allows the reconcilitaion of forward and backward looking Phillips curves. In the third chapter, I build and study a discrete time generalized dynamic a ne term structure model. This is characterized by three main features that are conceptually important for a ne yield curve models. I allow: (a) for state vector dynamics beyond Markovian types; (b) that all yields may contain an idiosyncratic component to re ect measurement-errors in the data; and (c) that idiosyncratic components may be crosssectional as well as time-serial correlated. It is possible to directly compare this model with the version that is restricted by Du e-Kan's no-arbitrage conditions. Chapter four addresses whether or not changes in yields can be explained by changes to the latent dynamic factors which underlie the macroeconomic concepts of in ation and real growth. As such, I contribute to the debate about whether or not monetary policy should react to real activity measures.

Download or read book Forecasting the U S Term Structure of Interest Rates Using a Macroeconomic Smooth Dynamic Factor Model written by Siem Jan Koopman and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We extend the class of dynamic factor yield curve models for the inclusion of macro-economic factors. We benefit from recent developments in the dynamic factor literature for extracting the common factors from a large panel of macroeconomic series and for estimating the parameters in the model. We include these factors into a dynamic factor model for the yield curve, in which we model the salient structure of the yield curve by imposing smoothness restrictions on the yield factor loadings via cubic spline functions. We carry out a likelihood-based analysis in which we jointly consider a factor model for the yield curve, a factor model for the macroeconomic series, and their dynamic interactions with the latent dynamic factors. We illustrate the methodology by forecasting the U.S. term structure of interest rates. For this empirical study we use a monthly time series panel of unsmoothed Fama-Bliss zero yields for treasuries of different maturities between 1970 and 2009, which we combine with a macro panel of 110 series over the same sample period. We show that the relation between the macroeconomic factors and yield curve data has an intuitive interpretation, and that there is interdependence between the yield and macroeconomic factors. Finally, we perform an extensive out-of-sample forecasting study. Our main conclusion is that macroeconomic variables can lead to more accurate yield curve forecasts.

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 Imperfect Information Macroeconomic Dynamics and the Yield Curve written by Hans Dewachter and published by . This book was released on 2008 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Information in the Yield Curve written by Hans Dewachter and published by . This book was released on 2014 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 The Yield Curve and Financial Risk Premia written by Felix Geiger and published by Springer. This book was released on 2011-08-17 with total page 260 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 The Macroeconomy and the Yield Curve written by Zeno Rotondi and published by . This book was released on 2015 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work focuses on the recent literature - started by the seminal article of Ang and Piazzesi (2003) - aimed at developing macro-finance models that combine finance specifications of the term structure of interest rates with standard macroeconomic aggregate relationships for output and inflation. We review the alternative models proposed in this new literature and discuss their main features. An alternative analysis based on the theory of cointegrated vector autoregressive models is developed and tested with the data available for the US.

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 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 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.