We extend the important idea of range-based volatility estimation to the multivariate case. In particular, we propose a range-based covariance estimator that is motivated by financial economic considerations (the absence of arbitrage), in addition to statistical considerations. We show that,...

From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint...

We estimate a model with latent factors that summarize the yield curve (namely, level, slope, and curvature) as well as observable macroeconomic variables (real activity, inflation, and the stance of monetary policy). Our goal is to provide a characterization of the dynamic interactions between...

A rapidly growing literature has documented important improvements in volatility measurement and forecasting performance through the use of realized volatilities constructed from high-frequency returns coupled with relatively simple reduced-form time series modeling procedures. Building on...

When constructing hedged interest rate arbitrage portfolios for basket currencies, two issues arise: first, how are the unknown future basket weights optimally forecasted from past exchange rate data? And, second, how is risk—in terms of the conditional variance of expected profits from the...

Monetary policymakers in advanced transition economies such as Poland are increasingly interested in how inflation responds to changes in policy instruments and other economic forces. In this paper, measures of underlying CPI inflation based upon optimal trimming concepts are developed. The...