Using data on government bond yields in Germany and the United States, we show that overseas unspanned factors — constructed from the components of overseas yields that are uncorrelated with domestic yields — have significant explanatory power for subsequent domestic bond returns. This...

No-arbitrage dynamic term structure models (DTSMs) have regularly been used to estimate interest rate expectations and term premia, but are beset by an identification problem that results in inaccurate estimates. I propose the augmentation of DTSMs with overnight indexed swap (OIS) rates to...

We develop a dynamic stochastic general equilibrium framework that can account for important macroeconomic and financial moments, given Epstein-Zin preferences, heterogeneous banking and third-order approximation methods that yield a time-varying term premium that feeds back to the real economy....

Dynamic no-arbitrage term structure models are popular tools for decomposing bond yields into expectations of future short-term interest rates and term premia. But there is insufficient information in the time series of observed yields to estimate the unconditional mean of yields in maximally...

This paper evaluates the robustness of UK bond term premia from affine term structure models. We show that this approach is able to match standard specification tests. In addition, term premia display countercyclical behaviour and are positively related to uncertainty about future inflation,...

As part of its August 2016 policy package, the Bank of England announced a scheme to purchase up to £10 billion of corporate bonds. Only sterling investment-grade bonds issued by firms making a ‘material' contribution to the UK economy were eligible to be purchased. So eligible bonds...

We show that firms' nominal required returns to capital (i.e., their discount rates) are sticky with respect to expected inflation. Such nominally sticky discount rates imply that increases in expected inflation directly lower firms' real discount rates and thereby raise real investment. We...

One way quantitative easing (QE) purchases of government bonds by central banks may affect the yield curve is by creating scarcity in the purchased securities, leading to an increase in their prices or equivalently a reduction in their yields. We analyse and compare the importance of this...

This paper studies monetary policy transmission mechanisms during QE. Using high frequency yield curve event studies of monetary policy announcements in combination with a dynamic term structure model, we can identify four types of monetary policy surprises: action, signalling (working through...

We propose a model where monetary policy is the key determinant of aggregate asset prices (financial conditions). Spending decisions are made by a group of agents ("households") that respond to aggregate asset prices, but with noise, delays, and inertia. Asset pricing is determined by a...