We estimate two-factor equilibrium models on different parts of the yield curve. In this exploration of the term structure of interest rates, we use two-factor affine yield models as our diagnostic tool. The exercise provides insights on how to reconcile the time-series dynamics of interest...

A measure of the credibility of monetary policy is the inflation risk premium in nominal yields. This will be time varying and can be estimated by combining the information in the nominal term structure with that in the real term structure. We estimate these risk premia using a generalized CIR...

We estimate and test a model of the U.S. term structure that fits both the time series of interest rates and the cross-sectional shapes of the yield and volatility curves. In the model, three unobserved factors drive a stochastic discount process that prices assets so as to rule out arbitrage...

The inflation-indexed bonds the U.S. Treasury plans to issue will reduce the expected borrowing cost if the yield curve reflects a risk premium for inflation. In the United Kingdom, indexed bonds are also used to extract inflationary expectations and thus to guide monetary policy. The bonds will...

We estimate a three-factor model to fit both the time-series dynamics and cross-sectional shapes of the U.S. term structure. In the model, three unobserved factors drive a discrete-time stochastic discount process, with one factor reverting to a fixed mean and a second factor reverting to a...

The literatures on default and the evaluation of low downpayment mortgage programs are extended by showing within an options pricing framework how differences in expected price appreciation trends across housing markets can influence default and, thereby, the cost of programs designed to...

Are all two-factor, term-structure models the same? The authors specify three models and estimate each on different parts of the U.S. yield curve. The exercise provides insights on reconciling the term structure's time series with its cross section and on relating it to fundamentals. The...

This paper investigates the implications of a regime switching monetary policy on real business cycle fluctuations. In a Cash-in-Advance model, a regime switching monetary policy with the typical observed business cycle durations could cause sizable fluctuations in real variables such as...

This paper investigates the feedback relationship between stock market returns and economic fundamentals in an emerging market. Starting from an intertemporal consumption-based CAPM (CCAPM), we obtain a restricted VAR model for stock returns and macroeconomic variables. We then apply this model...

We propose two test statistics in the frequency domain and derive their exact asymptotic null distributions under the condition of unidentified nuisance parameters. The proposed methods are particularly applicable in unobserved components models. Also, it is shown that the tests have...