This paper relates predictable gains from positions in fed funds futures contracts to violations of the expectations hypothesis of the term structure of interest rates. Although evidence for predictable gains from positions in short-horizon contracts is mixed, we find that gains in longer...

We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our...

This paper develops new results for identification and estimation of Gaussian affine term structure models. We establish that three popular canonical representations are unidentified, and demonstrate how unidentified regions can complicate numerical optimization. A separate contribution of the...

Satisfactory calculations of the welfare cost of aggregate consumption uncertainty require a framework that replicates major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with rare but large disasters is such a framework. In a...

Prior to the stock market crash of 1987, Black-Scholes implied volatilities of Samp;P 500 index options were relatively constant across moneyness. Since the crash, however, deep out-of-the-money Samp;P 500 put options have become %u2018expensive%u2019 relative to the Black-Scholes benchmark....

This paper examines empirically what the term structure of interest rates tells us about future inflation. The evidence indicates that the information in the term structure about the future path of inflation is quite different at the shortest end of the term structure (maturities six months or...

Many authors argue that asymmetric information between the Federal Reserve and the public is important to the conduct and the effects of monetary policy. This paper tests for the existence of such asymmetric information by examining Federal Reserve and commercial inflation forecasts. We...

This paper develops an affine model of the term structure of interest rates in which bond yields are driven by observable and unobservable macroeconomic factors. It imposes restrictions to identify the effects of monetary policy and other structural disturbances on output, inflation, and...