Developments in Macro-Finance Yield Curve Modelling (Macroeconomic Policy Making)

Cambridge University Press, 2/6/2014
EAN 9781107044555, ISBN10: 1107044553

Hardcover, 570 pages, 22.8 x 15.2 x 3.2 cm
Language: English

Changes in the shape of the yield curve have traditionally been one of the key macroeconomic indicators of a likely change in economic outlook. However, the recent financial crises have created a challenge to the management of monetary policy, demanding a revision in the way that policymakers model expected changes in the economy. This volume brings together central bank economists and leading academic monetary economists to propose new methods for modelling the behaviour of interest rates. Topics covered include: the analysis and extraction of expectations of future monetary policy and inflation; the analysis of the short-term dynamics of money market interest rates; the reliability of existing models in periods of extreme market volatility and how to adjust them accordingly; and the role of government debt and deficits in affecting sovereign bond yields and spreads. This book will interest financial researchers and practitioners as well as academic and central bank economists.

Foreword Paul Tucker
Preface
1. Editors' introductory chapter and overview J. S. Chadha, Alain C. J. Durré, M. A. S. Joyce and L. Sarno
Part I. Keynote Addresses
2. Is the long-term interest rate a policy victim, a policy variable or a policy lodestar? Philip Turner
3. Sovereign debt and monetary policy in the euro area Alain C. J. Durré and Frank Smets
4. The Federal Reserve's response to the financial crisis
what it did and what it should have done Daniel L. Thornton
5. Tail risks and contract design from a financial stability perspective Patrik Edsparr and Paul Fisher
Part II. New Techniques
6. Compound autoregressive processes and defaultable bond pricing Alain Monfort and Jean-Paul Renne
7. Yield curve dimensionality when short rates are near the zero lower bound James M. Steeley
8. The intelligible factor model
international comparison and stylized facts Yvan Lengwiler and Carlos Lenz
9. Estimating the policy rule from money market rates when target rate changes are lumpy Jean-Sébastien Fontaine
10. Developing a practical yield curve model
an odyssey M. A. H. Dempster, Jack Evans and Elena Medova
Part III. Policy
11. The repo and federal funds markets before, during, and emerging from the financial crisis Morten Bech, Elizabeth Klee and Viktors Stebunovs
12. Taylor rule uncertainty
believe it or not Andrea Buraschi, Andrea Carnelli and Paul Whelan
Part IV. Estimating Inflation Risk
13. Inflation compensation and inflation risk premia in the euro area term structure of interest rates Juan Angel Garcia and Thomas Werner
14. The predictive content of the yield curve for inflation Hans Dewachter, Leonardo Iania and Marco Lyrio
15. Inflation risk premium and the term structure of macroeconomic announcements in the euro area and the United States Marcello Pericoli
Part V. Default Risk
16. A term structure model for defaultable European sovereign bonds Priscilla Burity, Marcelo Medeiros and Luciano Vereda
17. Some considerations on debt and interest rates Luigi Marattin, Paolo Paesani and Simone Salotti
Index.

'The term structure of interest rates has always been at the nexus of monetary policy, macroeconomics and finance. The historic lows in policy interest rates since the onset of the crisis have exposed gaps in earlier models of the term structure, leading to new promising research that significantly enhances our understanding. This volume collects state of the art research on the term structure from the academic and policy communities, making it indispensable for both practitioners and policymakers who seek to deepen their knowledge of macro-finance during these challenging times.' Athanasios Orphanides, MIT Sloan School of Management

'This volume examines the challenges posed by the global financial crisis for policymakers and macro-financial economists and shows how they have risen to these. Contributors focus upon the money and bond markets that lay at the centre of this crisis, playing an increasingly important role in the communication and transmission of monetary policy. They suggest new non-linear yield curve models and methods for extracting about future inflation, output and default risk. This volume provides essential reading for policymakers, practitioners and academics interested in the financial sector and the economy.' Peter Spencer, University of York

'This timely conference volume addresses issues that are central to both the research agenda for macroeconomics and finance and to the decisions that policymakers will face as we emerge from the crisis.' Paul Tucker, Former Deputy Governor of the Bank of England