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85 Results

Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy

Staff Working Paper 2012-41 Jean-Sébastien Fontaine
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 and they do not distinguish between dates with and without scheduled announcements.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13

Forecasting Inflation and the Inflation Risk Premiums Using Nominal Yields

Staff Working Paper 2012-37 Bruno Feunou, Jean-Sébastien Fontaine
We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity.
August 16, 2012

Global Risk Premiums and the Transmission of Monetary Policy

An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool.

An International Dynamic Term Structure Model with Economic Restrictions and Unspanned Risks

Staff Working Paper 2012-5 Gregory Bauer, Antonio Diez de los Rios
We construct a multi-country affine term structure model that contains unspanned macroeconomic and foreign exchange risks. The canonical version of the model is derived and is shown to be easy to estimate.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Exchange rates, Interest rates JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15

Bond Liquidity Premia

Staff Working Paper 2009-28 Jean-Sébastien Fontaine, René Garcia
Recent asset pricing models of limits to arbitrage emphasize the role of funding conditions faced by financial intermediaries. In the US, the repo market is the key funding market. Then, the premium of on-the-run U.S. Treasury bonds should share a common component with risk premia in other markets.
Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability JEL Code(s): E, E4, E43, H, H1, H12

Combining Canadian Interest-Rate Forecasts

Staff Working Paper 2008-34 David Bolder, Yuliya Romanyuk
Model risk is a constant danger for financial economists using interest-rate forecasts for the purposes of monetary policy analysis, portfolio allocations, or risk-management decisions. Use of multiple models does not necessarily solve the problem as it greatly increases the work required and still leaves the question "which model forecast should one use?"

Good Policies or Good Fortune: What Drives the Compression in Emerging Market Spreads?

Staff Working Paper 2008-25 Philipp Maier, Garima Vasishtha
Since 2002, spreads on emerging market sovereign debt have fallen to historical lows. Given the close links between sovereign spreads, capital flows to emerging markets, and economic growth, understanding the factors driving these spreads is very important. We address this issue in two stages.
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