Cochrane and Piazzesi (2005) show that (i) lagged forward rates improve the predictability of annual bond returns, adding to current forward rates, and that (ii) a Markovian model for monthly forward rates cannot generate the pattern of predictability in annual returns. These results stand as a...

Theory and empirical evidence suggest that the term structure of interest rates reflects risk premiums as well as market expectations about future inflation and real interest rates. We propose an approach to extracting such premiums and expectations by exploiting both the comovements among...

We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity. We combine nominal yields with surveys of inflation forecasts within a...

Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions...

This paper proposes a novel regression-based approach to the estimation of Gaussian dynamic term structure models that avoids numerical optimization. This new estimator is an asymptotic least squares estimator defined by the no-arbitrage conditions upon which these models are built. We discuss...

We develop a finite-sample procedure to test for mean-variance efficiency and spanning without imposing any parametric assumptions on the distribution of model disturbances. In so doing, we provide an exact distribution-free method to test uniform linear restrictions in multivariate linear...

Model risk is a constant danger for financial economists using interest-rate forecasts for the purposes of monetary policy analysis, portfolio allocations, or risk-management decisions. Use of multiple models does not necessarily solve the problem as it greatly increases the work required and...

The debate on the order of integration of interest rates has long focused on the I(1) versus I(0) distinction. In this paper, we use instead the wavelet OLS estimator of Jensen (1999) to estimate the fractional integration parameters of several interest rates for the United States and Canada...

Using a panel logit framework, the paper provides an estimate of the likelihood of a house price correction in 18 OECD countries. The analysis shows that a simple measure of the degree of house price overvaluation contains a lot of information about subsequent price reversals. Corrections are...

Following theory, we check that funding risk connects illiquidity, volatility and returns in the cross-section of stocks. We show that the illiquidity and volatility of stocks increase with funding shocks, while contemporaneous returns decrease with funding shocks. The dispersions of...