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Estimation Of A Joint Model For The Term Structure Of Interest Rates And The Macroeconomy
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Book Synopsis Estimation of a Joint Model for the Term Structure of Interest Rates and the Macroeconomy by : Hans Dewachter
Download or read book Estimation of a Joint Model for the Term Structure of Interest Rates and the Macroeconomy written by Hans Dewachter and published by . This book was released on 2006 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we present a stylized continuous time model integrating the macroeconomy and the bond markets. We use this framework to estimate (real) interest rate policy rules using information contained in both macroeconomic variables (i.e. output and inflation) and in the term structure of interest rates. We extend the standard Kalman filter procedure in order to estimate this model efficiently. Application to the U.S. economy shows that this model is able to estimate the macroeconomic dynamics accurately and that the standard feedback rule only in observable factors is not valid within this framework. Moreover, we find that observable macroeconomic variables do not explain much of the term structure. However, (filtered) stochastic central tendencies of these macroeconomic variables do. Finally, both observable and non-observable factors determine the risk premia and hence the excess holding returns of the bonds.
Book Synopsis On the Estimation of Term Structure Models and An Application to the United States by : International Monetary Fund
Download or read book On the Estimation of Term Structure Models and An Application to the United States written by International Monetary Fund and published by International Monetary Fund. This book was released on 2010-11-01 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the estimation of models of the term structure of interest rates. After reviewing the term structure models, specifically the Nelson-Siegel Model and Affine Term- Structure Model, this paper estimates the terms structure of Treasury bond yields for the United States with pre-crisis data. This paper uses a software developed by Fund staff for this purpose. This software makes it possible to estimate the term structure using at least nine models, while opening up the possibility of generating simulated paths of the term structure.
Book Synopsis Modeling the Term Structure of Interest Rates by : Rajna Gibson
Download or read book Modeling the Term Structure of Interest Rates written by Rajna Gibson and published by Now Publishers Inc. This book was released on 2010 with total page 171 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
Book Synopsis Examining Simple Joint Macroeconomic and Term-Structure Models by : David Jamieson Bolder
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:
Book Synopsis The Term Structure of Interest Rates, Monetary Policy, and Macroeconomy by : Fan Dora Xia
Download or read book The Term Structure of Interest Rates, Monetary Policy, and Macroeconomy written by Fan Dora Xia and published by . This book was released on 2014 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the relationship between the term structure of interest rates, monetary policy, and macroeconomy. The first chapter, A Parsimonious No-Arbitrage Term Structure Model that is Useful for Forecasting, offers a solution to a well-known puzzle in the term structure literature. The puzzle is that while the level, slope and curvature (or the first three principal components of yields) can quite accurately summarize the cross-section of yields at any point in time, different functions of interest rates and other macroeconomic variables appear to be helpful when the goal is to predict future interest rates. My paper proposes a parsimonious representation to capture this feature in a large dataset. In the first step, I run reduced rank regressions of one-year excess returns on a panel of 131 macroeconomic variables and initial forward rates from 1964 to 2007. I find that a single linear combination of macroeconomic variables and forward rates can predict excess returns on two- to five-year maturity bonds with R-squared up to 0.71. The forecasting factor subsumes the tent-shaped linear combination of forward rates constructed by Cochrane and Piazzesi (2003) and explains excess returns better. In the second step, I estimate a restricted Gaussian Affine Term Structure Model (GATSM) with the level, slope and curvature commonly used by most term structure models along with the forecasting factor. Restrictions are derived based on the fact that while cross-sectional information in yields is spanned by the level, slope and curvature, cross-sectional information in expected excess returns is spanned by the forecasting factor. Compared with a conventional GATSM only including the level, slope and curvature, the restricted four-factor GATSM generates plausible countercyclical term premia. The second and third chapter focus on the recent zero lower bound (ZLB) period. In the second chapter, Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound, coauthored with Cynthia Wu, we employ an approximation that makes a nonlinear shadow rate term structure model (SRTSM) extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model offers a better description of the data compared to the widely used GATSM. Moreover, the model can be used to summarize the macroeconomic effects of unconventional monetary policy at the ZLB. Using a simple factor-augmented vector autoregression (FAVAR), we show that the shadow rate calculated by our model exhibits similar dynamic correlations with macro variables of interest in the period since 2009 as the fed funds rate did in data prior to the Great Recession. This result gives us a tool for measuring the effects of monetary policy under the ZLB, using either historical estimates based on the fed funds rate or less precisely measured estimates inferred solely from the new data for the shadow rate alone. We show that the Fed has used unconventional policy measures to successfully lower the shadow rate. Our estimates imply that the Fed's efforts to stimulate the economy since 2009 have succeeded in lowering the unemployment rate by 0.13% relative to where it would have been in the absence of these measure. The third chapter, Effects of Unconventional Monetary Policies on the Term Structure of Interest Rates, offers a complete characterization of effects of unconventional monetary policies on interest rates by examining policies' impacts on the whole yield curve. I make use of the SRTSM to summarize all interest rates with factors of lower dimension so that I can capture responses of all interest rates in a parsimonious way. By investigating how policy announcements affect the three factors and then the whole forward curve accordingly, I find that during the ZLB period, forward rate with short maturities are constrained, while forward rates with long maturities still respond to policy announcements. Following each easing (tightening) policy announcement, long forward rates would decrease (increase) by 10 basis points on average.
Book Synopsis Topics in Modeling the Term Structure of Interest Rates by : Marcel A. Priebsch
Download or read book Topics in Modeling the Term Structure of Interest Rates written by Marcel A. Priebsch and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies topics of current interest in modeling the term structure of interest rates. Chapter 1 develops and estimates a canonical arbitrage-free dynamic term structure model that incorporates macroeconomic variables. The model allows macroeconomic variables to contain information about future yields that is not reflected in the current cross section of yields ("unspanned" macro variables). Moreover, it accommodates rich feedback between macroeconomic and yield variables. Chapters 2 and 3 analyze the behavior of yields in low-interest environments. Standard Gaussian term structure models do not impose a lower bound on yields. As shown in Chapter 2, this can lead to estimation bias when a lower bound is present in the data. Chapter 3 develops a new technique for fast and accurate approximation of arbitrage-free bond yields in a class of "shadow rate" models that formally impose a lower bound on observed yields. Chapter 4 ties together the previous three chapters. It sets up and estimates a shadow rate term structure model with unspanned macro variables, and uses the model to analyze interest rate expectations before, during, and in the aftermath of the recent financial crisis.
Book Synopsis Modeling the Term Structure of Interest Rates by : Francois Lhabitant
Download or read book Modeling the Term Structure of Interest Rates written by Francois Lhabitant and published by . This book was released on 2001 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: The last two decades have seen the development of a profusion of theoretical models of the term structure of interest rates. This study provides a general overview and a comprehensive comparative study of the most popular ones among both academics and practitioners. It also discusses their respective advantages and disadvantages in terms of bond and/or interest rate contingent claims continuous time valuation or hedging, parameter estimation, and calibration. Finally, it proposes a unified approach for model risk assessment. Despite the relatively complex mathematics involved, financial intuition rather then mathematical rigour is emphasised throughout. The classification by means of general characteristics should enable the understanding of the different features of each model, facilitate the choice of a model in specific theoretical or empirical circumstances, and allows the testing of various models with nested as well as non-nested specifications.
Book Synopsis A Macro-finance Approach to the Term Structure of Interest Rates by : Marcelo Ferman
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.
Book Synopsis A Tale of Two Yield Curves by : Alexei V. Egorov
Download or read book A Tale of Two Yield Curves written by Alexei V. Egorov and published by . This book was released on 2008 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modeling the joint term structure of interest rates in the United States and the European Union, the two largest economies in the world, is extremely important in international finance. In this paper, we provide both theoretical and empirical analysis of multi-factor joint affine term structure models for dollar and euro interest rates. In particular, we provide a systematic classification of multi-factor joint affine term structure models similar to that of Dai and Singleton (2000). A principal component analysis of daily dollar and euro interest rates reveals four factors in the data. We estimate four-factor joint affine term structure models using the approximate maximum likelihood method of Ait-Sahalia (2002, 2007) and compare the in-sample and out-of-sample performances of these models using some of the latest nonparametric methods. We find that a new four-factor model with two common and two local factors captures the joint term structure dynamics in the U.S. and the E.U. reasonably well.
Author :Jun Yang Publisher :National Library of Canada = Bibliothèque nationale du Canada ISBN 13 :9780612916180 Total Pages :107 pages Book Rating :4.9/5 (161 download)
Book Synopsis Empirical Estimation of Default-free and Defaultable Term Structure of Interest Rates [microform] by : Jun Yang
Download or read book Empirical Estimation of Default-free and Defaultable Term Structure of Interest Rates [microform] written by Jun Yang and published by National Library of Canada = Bibliothèque nationale du Canada. This book was released on 2004 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation estimates default-free and defaultable term structure models derived under no arbitrage conditions. These models are applied to daily government and corporate bond prices. The main objective of the dissertation is to exam the improvement obtained by augmenting traditional latent models with macroeconomic variables. A simple multivariate Vasicek model is used as a benchmark model. The predictive performances of these models are compared. The no arbitrage assumption is imposed so that the responses of both default-free and defaultable yield curves to the macroeconomic shock can be examined.
Book Synopsis Predicting the Term Structure of Interest Rates by : Michiel De Pooter
Download or read book Predicting the Term Structure of Interest Rates written by Michiel De Pooter and published by . This book was released on 2010 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We assess the relevance of parameter uncertainty, model uncertainty, and macroeconomic information for forecasting the term structure of interest rates. We study parameter uncertainty by comparing Bayesian inference with frequentist estimation techniques, and model uncertainty by combining forecasts from individual models. We incorporate macroeconomic information in yield curve models by extracting common factors from a large panel of macro series. Our results show that accounting for parameter uncertainty does not improve the forecast performance of individual models. The predictive accuracy of single models varies over time considerably and we demonstrate that mitigating model uncertainty by combining forecasts leads to substantial gains in predictability. Combining forecasts using a weighting method that is based on relative historical performance results in highly accurate forecasts. The gains in terms of forecast performance are substantial, especially for longer maturities, and are consistent over time. In addition, we find that adding macroeconomic factors generally is beneficial for improving out-of-sample forecasts.
Book Synopsis Learning, Macroeconomic Dynamics and the Term Structure of Interest Rates by : Hans Dewachter
Download or read book Learning, Macroeconomic Dynamics and the Term Structure of Interest Rates written by Hans Dewachter and published by . This book was released on 2006 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a macroeconomic model in which agents learn about the central bank's inflation target and the output-neutral real interest rate. We use this framework to explain the joint dynamics of the macroeconomy, and the term structures of interest rates and inflation expectations. Introducing learning in the macro model generates endogenous stochastic endpoints which act as level factors for the yield curve. These endpoints are suffciently volatile to account for most of the variation in long-term yields and inflation expectations. As such, this paper complements the current macro-finance literature in explaining long-term movements in the term structure without reference to additional latent factors.
Book Synopsis An Assessment of Estimates of Term Structure Models for the United States by : Ying He
Download or read book An Assessment of Estimates of Term Structure Models for the United States written by Ying He and published by International Monetary Fund. This book was released on 2011-10-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper assesses estimates of term structure models for the United States. To this end, this paper first describes the mathematics underlying two types of term structure models, namely the Nelson-Siegel and Cox, Ingersoll and Ross family of models, and the estimation techniques. It then presents estimations of some of specific models within these families of models?three-factor Nelson-Siegel Model, four-factor Svensson model, and preference-free, two-factor Cox, Ingersoll and Roll model?for the United States from 1972 to mid 2011. It subsequently provides an assessment of the estimations. It concludes that these estimations of the term structure models successfully capture the dynamics of the term structure in the United States.
Book Synopsis Structural Econometric Models by : Eugene Choo
Download or read book Structural Econometric Models written by Eugene Choo and published by Emerald Group Publishing. This book was released on 2013-12-18 with total page 447 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume focuses on recent developments in the use of structural econometric models in empirical economics. The first part looks at recent developments in the estimation of dynamic discrete choice models. The second part looks at recent advances in the area empirical matching models.
Book Synopsis Estimating and Interpreting Forward Interest Rates by : Mr.Lars E. O. Svensson
Download or read book Estimating and Interpreting Forward Interest Rates written by Mr.Lars E. O. Svensson and published by International Monetary Fund. This book was released on 1994-09-01 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden 1992-1994 as an example. The forward rates are interpreted as indicating market expectations of the time-path of future interest rates, future inflation rates, and future currency depreciation rates. They separate market expectations for the short-, medium-, and long-term more easily than the standard yield curve. Forward rates are estimated with an extended and more flexible version of Nelson and Siegel’s functional form.
Book Synopsis Advances in Corporate Finance and Asset Pricing by : Luc Renneboog
Download or read book Advances in Corporate Finance and Asset Pricing written by Luc Renneboog and published by Emerald Group Publishing. This book was released on 2006-03-02 with total page 569 pages. Available in PDF, EPUB and Kindle. Book excerpt: Incorporates estimation risk in portfolio choice and also covers a risk measure for retail investment products, understanding and exploiting momentum in stock returns. This book includes: Introduction - Corporate restructuring; mergers and acquisitions in Europe; and the performance of acquisitive companies in the US.
Book Synopsis A Macroeconomic Approach to the Term Premium by : Emanuel Kopp
Download or read book A Macroeconomic Approach to the Term Premium written by Emanuel Kopp and published by International Monetary Fund. This book was released on 2018-06-15 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, term premia have been very low and sometimes even negative. Now, with the United States economy growing above potential, inflationary pressures are on the rise. Term premia are very sensitive to the expected future path of growth, inflation, and monetary policy, and an inflation surprise could require monetary policy to tighten faster than anticipated, inducing to a sudden decompression of term and other risk premia, thus tightening financial conditions. This paper proposes a semi-structural dynamic term structure model augmented with macroeconomic factors to include cyclical dynamics with a focus on medium- to long-run forecasts. Our results clearly show that a macroeconomic approach is warranted: While term premium estimates are in line with those from other studies, we provide (i) plausible, stable estimates of expected long-term interest rates and (ii) forecasts of short- and long-term interest rates as well as cyclical macroeconomic variables that are stunningly close to those generated from large-scale macroeconomic models.
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