This paper uses daily capital flows to the Swedish bond market to analyse the relative information endowment of domestic and foreign investors. Using the standard framework of a noisy rational expectations equilibrium it is shown that foreign investors are, on average, better informed than...

The floating of a number of European currencies in 1992-93 created a new body of data on risk premia on floating exchange rates. In this paper, excess returns to investments in SEK, NOK, FIM, GBP, ITL and EPT against the DEM are investigated. We model the risk premia as functions of time varying...

For finite dimensional factor models, the paper studies general quadratic term structures. These term structures include as special cases the affine term structures and the Gaussian quadratic term structures, previously studied in the literature. We show, however, that there are other,...

This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates...

The main instrument of monetary policy in industrialized countries is currently a short-term interest rate. It typically remains unchanged during long spans of time. This paper tries to answer three questions. Why do Central Banks change targeted interest rates so seldom? How should we estimate...

According to the Uncovered Interest Parity (UIP) condition, interest rate differentials compensate for expected exchange rate changes, equalizing the expected returns from holding assets which only differ in terms of currency denomination. In the previous literature, there are many tests of UIP...

We summarize some methods useful in formulating and solving Hansen-Sargent robust control problems, and suggest extensions to discretion and simple rules. Matlab, Octave, and Gauss software is provided. We illustrate these extensions with applications to the term structure of interest rates, the...

The purpose of this essay is to give an overview of some recent workconcerning structural properties of the evolution of the forward rate curve in an arbitrage free bond market. The main problems to be discussed are as follows. <p> <p> 1. When is a given forward rate model consistent with a given...</p></p>

A structural rational expectations model of U.S. monetary policy is used to make a counterfactual experiment of a strongly inflation averse Federal Reserve Bank. Results for U.S. interest rates, output, and inflation over 1965-1999 are discussed.

We derive general necessary and sufficient conditions for the mutual consistency of a given parametrized family of forward rate curves and the dynamics of a given interest rate model. Consistency in this context means that the interest rate model will produce forward rate curves belonging to the...