This paper contains a statistical description of the whole U.S. forward rate curve (FRC), based on data from the period 1990-1996. We find that the average deviation of the FRC from the spot rate grows as the square- root of the maturity, with a proportionality constant which is comparable to...

The general view of the media, bankers, business and politicians, not noticeably contradicted by academics, is that one of the main functions, or the main function, of the central bank is to analyse the progress of the economy, and then to steer it with skilful judgement towards health and...

Recent empirical results about the US term structure are difficult to reconcile with the classical hypothesis of rational expectations even if time-varying but stationary term premia are allowed for. A hypothesis of rational learning about the conditional variance of the log pricing kernel is...

This paper examines the optimal frequency of monetary policy meetings when their schedule is pre-announced. Our contribution is twofold. First, we show that in the standard New Keynesian framework infrequent but periodic revision of monetary policy may be desirable even when there are no...

This paper attempts to provide an empirical determination of the Philippine central bank's (BSP) recent monetary policy stance, before and after its adoption of the inflation targeting framework, as revealed by its interest rate setting behavior. Employing Clarida, Gali, and Gertler's (1998,...

We present a simple model, where intraday and overnight interest rates are linked by a no-arbitrage argument. The hourly interest rate is shown to be a function of the intraday term structure of the overnight rate. This property holds under both assumptions, where an explicit intraday market for...

Dynamic term structure models (DTSMs) price interest rate derivatives based on the model­ implied fair values of the yield curve, ignoring any pricing residuals on the yield curve that are either from model approximations or market imperfections. In contrast, option pricing in practice often...

We investigate whether the same finite dimensional dynamic system spans both interest rates (the yield curve) and interest rate options (the implied volatility surface). We find that the options market exhibits factors independent of the underlying yield curve. While three common factors are...

Expected inflation is a major decision factor of various economic agents. Since expected inflation is not directly observable, economists have been seeking ways of extracting market’s inflation expectations from observable variables. One of the most reliable sources of inflation expectations...