This paper proposes a novel methodology, based on the Common Principal Component analysis, allowing one to estimate the factors driving the term structure of interest rates, in the presence of time-varying covariance structure.

Central bankers’ conventional wisdom suggests that nominal interest rates should be raised to implement a lower inflation target. In contrast, I show that the standard New Keynesian monetary model predicts that nominal interest rates should bedecreased to attain this goal. Real interest rates,...

A system of U.S. and euro area short- and long-term interest rates is analyzed. According to the expectations hypothesis of the term structure the interest rate spreads should be stationary and according to the uncovered interest rate parity the difference between the U.S. and euro area longterm...

Interest income is the most important source of revenue for most of thebanks. The aim of this paper is to assess the impact of different interest ratescenarios on the banks' interest income. As we do not know the interest ratesensitivity of real banks, we construct for each bank a portfolio with...

This paper investigates whether information from foreign yield curves helps forecast domestic yieldcurves out-of-sample. A nested methodology to forecast yield curves in domestic and internationalsettings is applied on three major countries (the US, Germany and the UK). This novel methodologyis...

We construct a factor model of the yield curve and specify time series processes forthese factors, so that the innovations are mutually orthogonal. At the same time,the factors are constructed in such a way that they assume clear, intuitive interpretations.The resulting “intelligible...

We provide the definition and a complete characterization of regular affine processes. This type of process unifies the concepts of continuous-state branching processes with immigration and Ornstein-Uhlenbeck type processes.(...)

This paper developes a model of optimal consumption and portfolio choice for infinitely-lived investors facing stochastic interest rates, solve it using an approximate analytical method, and evaluate the conventional wisdom.

This paper publishes new results on immunization of bond portfolios.

This paper develops a model and estimate simultaneously the joint dynamics of default-free and defaultable bond term structures.