This paper outlines important lessons for monetary policy. In particular, the role of inflation targeting, which was much acclaimed prior to the financial crisis and since then has not lost much of its endorsement, is critically reviewed. Ignoring the relation between monetary policy and asset...

We study the impact of the arrival of macroeconomic news on the informational and noise-driven components in high-frequency quote processes and their conditional variances. Bid and ask returns are decomposed into a common ('efficient return') factor and two market-side-specific components...

Macro announcements change the equilibrium riskfree rate. We find that treasury prices reflect part of the impact instantaneously, but intermediaries rely on their customer order flow in the 15 minutes after the announcement to discover the full impact. We show that this customer flow...

This study uses Markov-switching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a two-state regime-switching process. Moreover,...

We evaluate the asset pricing implications of a class of models in which risk sharing is imperfect because of the limited enforcement of intertemporal contracts. Lustig (2004) has shown that in such a model the asset pricing kernel can be written as a simple function of the aggregate consumption...

We study the role of institutional characteristics of mortgage markets in affecting the strength and timing of the effects of monetary policy shocks on house prices and consumption in a sample of OECD countries. We document three facts: (1) there is significant divergence in the structure of...

Modeling short-term interest rates as following regime-switching processes has become increasingly popular. Theoretically, regime-switching models are able to capture rational expectations of infrequently occurring discrete events. Technically, they allow for potential time-varying stationarity....

This paper empirically tests the role of bank lending tightening on non-financial corporate (NFC) bond issuance in the eurozone. By utilizing a unique data set provided by the ECB Bank Lending Survey, we capture the pure credit supply effect on corporate external financing. We find that...

This paper deals with the proposed use of sovereign credit ratings in the Basel Accord on Capital Adequacy (Basel II) and considers its potential effect on emerging markets financ-ing. It investigates in a first attempt the consequences of the planned revisions on the two central aspects of...