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Monetary policy and asset price overshooting: a rationale for the Wall/Main Street disconnect
Caballero, Ricardo J.; Simsek, Alp - 2022
We analyze optimal monetary policy and its implications for asset prices, when aggregate demand has inertia and responds to asset prices with a lag. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (asset prices are initially pushed above their...
Persistent link: https://www.econbiz.de/10013093040
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Secular economic changes and bond yields
Feunou, Bruno; Fontaine, Jean-Sébastien - 2021 - Last updated: March 19, 2021
We build a model for bond yields based on a small-scale representation of an economy with secular declines in inflation, the real rate and output growth. Long-run restrictions identify nominal shocks that influence long-run inflation but do not influence the long-run real rate or output growth....
Persistent link: https://www.econbiz.de/10012488074
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Uncertainty shocks, monetary policy and long-term interest rates
Amisano, Gianni; Tristani, Oreste - 2019
, or "uncertainty shocks", are an important model ingredient. First, they account for countercyclical movements in risk … changes in both risk-premia and expected future real rates, uncertainty shocks account for about 1/2 of the variance of long …
Persistent link: https://www.econbiz.de/10012009116
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Modeling persistent interest rates with volatility-induced stationarity
Hansen, Anne Lundgaard - 2019
It is well-known that interest rates are extremely persistent, yet they are best modeled and understood as stationary processes. These properties are contradictory in the workhorse Gaussian affine term structure model in which persistent data often result in unit roots that imply...
Persistent link: https://www.econbiz.de/10012111254
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The monetary policy decision-making process and the term structure of interest rates
Dillén, Hans (contributor) - 2008
This paper presents a theoretical model of the term structure of interest rates based on the monetary policy decision-making process at modern central banks. Evaluations of explicit expressions for the spot and forward rate curve render several important results: (i) Spot and forward rates are...
Persistent link: https://www.econbiz.de/10003672572
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The Yield Curve’s Search for the Natural Rate of Interest
Carr, Douglas - 2019
riskless rates converge to the natural rate of interest.The first yield curve model is based upon risk rather than time. The … riskless rate is the incremental yield for an infinitesimal amount of risk and is computed directly from bond yields. Resulting …
Persistent link: https://www.econbiz.de/10012898619
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A Keynesian approach to modeling the long-term interest rate
Akram, Tanweer - 2021
There are several widely used benchmark models of the long-term interest rate in quantitative finance. However, these models have yet to incorporate Keynes's valuable insights about interest rate dynamics. The Keynesian approach to interest rate dynamics can be readily incorporated in the...
Persistent link: https://www.econbiz.de/10012548206
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Natural rate chimera and bond pricing reality
Brand, Claus; Goy, Gavin; Lemke, Wolfgang - 2021
We build a novel macro-finance model that combines a semi-structural macroeconomic module with arbitrage-free yield-curve dynamics. We estimate it for the United States and the euro area using a Bayesian approach and jointly infer the real equilibrium interest rate (r*), trend inflation (π*),...
Persistent link: https://www.econbiz.de/10012705391
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Multifactor Keynesian Models of the Long-Term Interest Rate
Akram, Tanweer - 2021
This paper presents multifactor Keynesian models of the long-term interest rate. In recent years there have been a proliferation of empirical studies based on the Keynesian approach to interest rate modeling. However, standard multifactor models of the long-term interest rate in quantitative...
Persistent link: https://www.econbiz.de/10013219478
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Real and Nominal Equilibrium Yield Curves with Endogenous Inflation : A Quantitative Assessment
Hsu, Alex - 2015
The links between real and nominal bond risk premia and macroeconomic dynamics are explored analytically and … real and nominal risk premia through endogenous inflation. The estimated model captures macroeconomic and yield curve … properties of the U.S. economy, implying significantly positive real term and inflation risk bond premia. Both premia are induced …
Persistent link: https://www.econbiz.de/10013032008