Is monetary policy effective? We rely on the evidence from the term structure of inflation expectations implicit in the nominal yields and survey forecasts of inflation to address this question. We construct a model that accommodates forecasts over multiple horizons from multiple surveys and...

We use evidence from the term structure of inflation expectations implicit in the nominal yields and survey forecasts of inflation to address the question of whether or not monetary policy is effective. We construct a model that accommodates forecasts over multiple horizons from multiple surveys...

We provide novel evidence of priced correlation risk in the foreign exchange market. Currencies that perform badly (well) during periods of high exchange rate correlation have high (low) average returns. We also show that high (low) interest rate currencies have high (low) correlation risk...

We study the feedback from hedging mortgage portfolios on the level and volatility of interest rates. We incorporate the supply shocks resulting from hedging into an otherwise standard dynamic term structure model, and derive two sets of predictions which are strongly supported by the data:...

We document that cross-sectional FX correlation disparity is countercyclical, as exchange rate pairs with high average correlation become more correlated in bad times whereas pairs with low average correlation become less correlated. We show that currencies that perform badly (well) during...

In this paper we study how funding constraints affect asset prices internationally. We build an equilibrium model with multiple countries where investors face margin constraints, and derive an international funding-liquidity-adjusted CAPM. In particular, the model has implications for (i) the...

In the short-run, bond risk premia exhibit pronounced spikes around major economic and financial crises. In contrast, long-term bond risk premia feature cyclical swings. We empirically examine the predictability of the market variance risk premium—a proxy of economic uncertainty—for bond...

Using data from 1983 to 2010, we propose a new fear measure for Treasury markets, akin to the VIX for equities, labeled TIV. We show that TIV explains one third of the time variation in fund- ing liquidity and that the spread between the VIX and TIV captures flight to quality. We then construct...

Foreign exchange correlation is a key driver of risk premia in the cross-section of carry trade returns. First, we show that the correlation risk premium, defined as the difference between the risk-neutral and objective measure correlation is large (15% per year) and highly time-varying. Second,...

Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several New Keynesian and macro-finance models in which the Taylor rule includes a shock unseen by economists. We show that identification of the rule's...