Some key features in the historical dynamics of U.S. Treasury bond yields-a trend in long-term yields, business cycle movements in short-term yields, and a level shift in yield spreads-pose serious challenges to existing equilibrium asset pricing models. This paper presents a new equilibrium...

Equilibrium bond-pricing models rely on inflation being bad news for future growth to generate upward-sloping nominal yield curves. We develop a model that can generate upward-sloping nominal and real yield curves by instead using ambiguity about inflation and growth. Ambiguity can help resolve...

Recent findings on the term structure of equity and bond yields pose serious challenges to existing models of equilibrium asset pricing. This paper presents a new equilibrium model of subjective expectations to explain the joint historical dynamics of equity and bond yields (and their yield...

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...

The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a "path" factor signaling information about future policy actions, which is filtered from federal funds futures data. The uncertainty is highest when it...

This paper investigates the joint dynamics of nominal bond yields, real bond yields and dividend yields from the 80s up to the aftermath of the financial crisis by mapping them on a set of macro factors. It builds on an existing discrete time affine Gaussian model of the term structure model of...

Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions...

We use relative value to measure limits to arbitrage in fixed-income markets. Relative value captures apparent deviations from no-arbitrage relationships. It is simple, intuitive and can be computed model-free for any bond. A pseudo-trading strategy based on relative value generates higher...

This paper aims to extend the existing literature on foreign exchange rate risk pricing. Unlike the existing studies on Canada, we use six alternative bilateral and one multilateral exchange rate proxies. Furthermore, using both a two-factor and a three-factor capital asset pricing model (CAPM),...

This paper studies the equilibrium term structure of nominal and real interest rates and the time-varying bond risk premia implied by a stochastic endogenous growth model with imperfect price adjustment and monetary policy shocks. The production and price-setting decisions of firms drive...