It is a widely encountered misconception that the vector of spreads between longer-term interest rates and the short rate is stationary under the Expectations Theory (ET). By considering a complete term structure of maturities it is shown that the ET determines the conditional mean of the VAR...

This paper asks how well a general equilibrium agency cost model describes the dynamic relationship between credit variables and the business cycle. A Bayesian VAR is used to obtain probability intervals for empirical correlations. The agency cost model is found to predict the leading,...

Functional Signal plus Noise (FSN) models are proposed for analysing the dynamics of a large cross-section of yields or asset prices in which contemporaneous observations are functionally related. The FSN models are used to forecast high dimensional yield curves for US Treasury bonds at the one...

The class of Functional Signal plus Noise (FSN) models is introduced that provides a new, general method for modelling and forecasting time series of economic functions. The underlying, continuous economic function (or `signal') is a natural cubic spline whose dynamic evolution is driven by a...