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Jel Classification:E47 

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Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico

To study inflation expectations and associated risk premia in emerging bond markets, this paper provides estimates for Mexico based on an arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for their liquidity risk. In addition to documenting the existence of large and time-varying liquidity premia in nominal and real bond prices that are only weakly correlated, the results indicate that long-term inflation expectations in Mexico are well anchored close to the inflation target of the Bank of Mexico. Furthermore, Mexican inflation risk premia are larger ...
Staff Reports , Paper 961

Working Paper
How Effective is Monetary Policy at the Zero Lower Bound? Identification Through Industry Heterogeneity

US monetary policy was constrained from 2008 to 2015 by the zero lower bound, during which the Federal Reserve would likely have lowered the federal funds rate further if it were able to. This paper uses industry-level data to examine how growth was affected. Despite the zero bound constraint, industries historically more sensitive to interest rates, such as construction, performed relatively well in comparison to industries not typically affected by monetary policy. Further evidence suggests that unconventional policy lowered the effective stance of policy below zero.
Finance and Economics Discussion Series , Paper 2017-073

Working Paper
A Time Series Model of Interest Rates With the Effective Lower Bound

Modeling interest rates over samples that include the Great Recession requires taking stock of the effective lower bound (ELB) on nominal interest rates. We propose a flexible time? series approach which includes a ?shadow rate??a notional rate that is less than the ELB during the period in which the bound is binding?without imposing no?arbitrage assumptions.{{p}}The approach allows us to estimate the behavior of trend real rates as well as expected future interest rates in recent years.
Finance and Economics Discussion Series , Paper 2016-033

Working Paper
Inferring the Shadow Rate from Real Activity

We estimate a shadow rate consistent with the paths of time series capturing real activity. This allows us to quantify the real effects of unconventional monetary policy in terms of equivalent short-term interest rate movements. We find that large-scale asset purchases and forward guidance had significant real effects equivalent of up to a four percent reduction in the federal funds rate.
Finance and Economics Discussion Series , Paper 2017-106

Working Paper
Low Frequency Effects of Macroeconomic News on Government Bond Yields

This study analyzes the reaction of the U.S. Treasury bond market to innovations in macroeconomic fundamentals. We identify these innovations with macroeconomic news, defined as differences between the actual releases and their market expectations. We show that macroeconomic news explain about one-third of the low frequency (quarterly) fluctuations of long-term bond yields. When focusing on the high frequency (daily) movements this share decreases to one-tenth. This result is due to the fact that macro news have a persistent effect on the yield curve. Non-fundamental factors, instead, ...
Finance and Economics Discussion Series , Paper 2014-52

Working Paper
The Skewness of the Price Change Distribution : A New Touchstone for Sticky Price Models

We present a new way of empirically evaluating various sticky price models used to assess the degree of monetary non-neutrality. While menu cost models uniformly predict that price change skewness and dispersion fall with inflation, in the Calvo model both rise. However, CPI price data from the late 1970's onwards shows that skewness does not fall with inflation, while dispersion does. We develop a random menu cost model that, with a menu cost distribution that has a strong Calvo feature, can match the empirical patterns found. The model therefore exhibits much more monetary non-neutrality ...
Finance and Economics Discussion Series , Paper 2017-028

Journal Article
Microfoundations of Money: Why They Matter

What is the value of having microfoundations for monetary exchange in a macro model? In this article, the author attempts to answer this question by listing what he considers the major accomplishments of the field. He argues that the evidence overwhelmingly shows that microfoundations matter for many questions of first-order importance in macroeconomics.
Review , Volume 97 , Issue 4 , Pages 289-301

Journal Article
How Effective Is Central Bank Forward Guidance?

This paper investigates the effectiveness of forward guidance for the central banks of New Zealand, Norway, Sweden, and the United States. The authors test whether forward guidance improved market participants? ability to forecast future short-term and long-term rates relative to several benchmarks. They find some evidence that forward guidance improved market participants? ability to forecast short-term rates over relatively short forecast horizons for New Zealand, Norway, and Sweden but not the United States. However, the effects are typically small and frequently not statistically ...
Review , Volume 97 , Issue 4 , Pages 303-22

Working Paper
How Persistent Are Unconventional Monetary Policy Effects?

Event studies show that the Federal Reserve?s announcements of forward guidance and large Scale asset purchases had large and desired effects on asset prices but they do not tell us how long such effects last. Wright (2012) used a structural vector autoregression (SVAR) to argue that unconventional policies have very transient effects on bond yields, with half-lives of 3 to 6 months. The present paper shows, however, that the SVAR is very possibly misspecified, structurally unstable, forecasts very poorly and therefore delivers spurious inference. In addition, the implied in-sample return ...
Working Papers , Paper 2014-4

Working Paper
Extrapolating Long-Maturity Bond Yields for Financial Risk Measurement

Insurance companies and pension funds have liabilities far into the future and typically well beyond the longest maturity bonds trading in fixed-income markets. Such long-lived liabilities still need to be discounted, and yield curve extrapolations based on the information in observed yields can be used. We use dynamic Nelson-Siegel (DNS) yield curve models for extrapolating risk-free yield curves for Switzerland, Canada, France, and the U.S. We find slight biases in extrapolated long bond yields of a few basis points. In addition, the DNS model allows the generation of useful financial risk ...
Working Paper Series , Paper 2018-9

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Christensen, Jens H. E. 5 items

Bauer, Michael D. 3 items

Clark, Todd E. 3 items

Gavin, William T. 3 items

Iacoviello, Matteo 3 items

Jordà, Òscar 3 items

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