We separate changes of the federal funds rate into two components; one reflects the Fed's superior forecasts about the state of the economy and the other component reflects the Fed's reaction to the public's forecast about the state of the economy. Romer and Romer (2000) found that the Fed...

Empirical evidence on the expectations hypothesis of the term structure is in-conclusive and its validity widely debated. Using a cointegrated VAR model of US treasury yields, this paper extends a common approach to test the theory. If, as we find, spreads between two yields are non-stationary,...

With the elimination of foreign exchange risk among the E.M.U.-member countries, the yield of, say, French benchmark government bonds (henceforth, the yield) should be equal to that of German bonds, plus some credit and liquidity premia. Since both premia are not likely to change substantially...

The paper develops an empirical no-arbitrage Gaussian affine term structure model to explain the dynamics of the German term structure of interest rates from 1979 through 1998. In contrast to most affine term structure models two risk factors that drive the dynamics are linked to observable...

This paper evaluates the consequences of accelerated technical progress for monetary transmission and the speed of adjustment in the real economy. With a decreasing service life, the long term rate relevant to real demand will resemble more closely the money market rate. We make the investment...

This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term spread and the ECB's policy rate has been affected by rate expectations and the operational framework of the ECB. In line with recent evidence found for the US and Japan, the reaction of the Eonia...

Using a stochastic discount factor approach, we derive the exact solution for arbitrage-free bond yields for the case that the short-term interest rate follows a threshold process with the intercept switching endogenously. The yield functions, mapping the one-month rate into n-period yields,...

This paper studies a nonlinear one-factor term structure model in discrete time. The single factor is the short-term interest rate, which is modeled as a self-exciting threshold autoregressive (SETAR) process. Our specification allows for shifts in the intercept and the variance. The process is...

The paper presents a comprehensive data set of all bonds issued by the sixteen German states (L¨ander) since 1992. It thus provides a complete picture of a capital market comparable in size to funds raised in the German fixed income market for corporations. The quantitative analysis reveals...

In this study we forecast the term structure of FIBOR/EURIBOR swap rates by means of recursive vector autoregressive (VAR) models. In advance, a principal components analysis (PCA) is adopted to reduce the dimensionality of the term structure. To evaluate ex?ante forecasting performance for...