Cochrane and Piazzesi (2005) show that (i) lagged forward rates improve the predictability of annual bond returns, adding to current forward rates, and that (ii) a Markovian model for monthly forward rates cannot generate the pattern of predictability in annual returns. These results stand as a...

In this paper, we present a general discrete-time affine framework aimed at jointly modeling yield curves associated with different debtors. The underlying fixed-income securities may differ in terms of credit quality and/or in terms of liquidity. The risk factors follow conditionally Gaussian...

Cochrane and Piazzesi (2005) show that (i) lagged forward rates help predict bond returns and that (ii) modern Markovian dynamic term structure models (DTSMs) cannot match the evidence. We develop the family of Conditional Mean DTSMs where the dynamics depend on current yields and their history...

We build a model for bond yields based on a small-scale representation of an economy with secular declines in inflation, the real rate and output growth. Long-run restrictions identify nominal shocks that influence long-run inflation but do not influence the long-run real rate or output growth....

We build a small-scale representation of an economy in which the short rate, inflation and output exhibit unobserved secular and cyclical components that both drive bond yields. We impose the economic restriction that expected bond returns are purely cyclical so that their variance does not...

We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity. We combine nominal yields with surveys of inflation forecasts within a...

The recent macro-finance yield curve literature does not agree neither about term premia empirical properties nor about the importance or even the direction of its relationship with future economic activity. This paper proposes a two-step approach to handle both problems. First, in a VAR...

The purpose of the paper is to propose a global discrete-time modeling of the term structure of interest rates able to capture simultaneously the following important features: (i) an historical dynamics of the factor driving term structure shapes involving several lagged values, and switching...

In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in...

Standard Gaussian macro-finance term structure models impose the Markov property: the conditional mean is a function of the risk factors. We relax this assumption parsimoniously, and consider models where yields are linear in the conditional mean (but not in the risk factors). To illustrate, if...