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We study the problems of consistency and the existence of finite-dimensional realizations for multi-curve interest rate models of Heath–Jarrow–Morton type, generalizing the geometric approach developed by T. Björk and co-authors for the classical single-curve setting. We characterize when a multi-curve interest rate model is consistent with a given parameterized family of forward curves and spreads and when a model can be realized by a finite-dimensional state process. We illustrate the general theory in a number of model classes and examples, providing explicit constructions of finite-dimensional realizations. Based on these theoretical results, we perform the calibration of a three-curve Hull–White model to market data and analyse the stability of the estimated parameters. [ABSTRACT FROM AUTHOR]

This article explores the long-term and cyclical effects of the Pasinetti Index (PI) and their implications for income distribution and macroeconomic policy in a post-pandemic environment marked by inflationary pressures and increasingly restrictive central bank policies. It discusses the relevance of adopting a zero PI as monetary policy framework as either a short-term target or a long-term norm. The research underscores the importance of coordinating monetary and fiscal policies to achieve a balanced mix of short-term and long-term macroeconomic goals, as per the Pasinetti rule, aimed at stabilizing income distribution between rentier and non-rentier groups without compromising on a Keynesian full employment commitment. By analyzing historical data and employing a SVAR model for Canada and the United States, the study highlights the significant cyclical impact of PI fluctuations on unemployment and income distribution. The findings challenge the efficacy of rigid monetary policy rules and support a macroeconomic policy that reconciles short-term employment objectives and long-term distributional goals. [ABSTRACT FROM AUTHOR]

Purpose: To investigate the role of domestic and foreign economic policy uncertainty (EPU) in driving the corporate bond yields in emerging markets. Design/methodology/approach: The study utilizes monthly data from January 2008 to June 2023 from the selected emerging economies. The data analysis is conducted using univariate, bivariate and multivariate statistical techniques. The study includes bond market liquidity and global volatility (VIX) as control variables. Findings: Domestic EPU has a significant role in driving corporate bond yields in these markets. The study finds weak evidence to support the role of the USA EPU in influencing corporate bond yields in emerging economies. Domestic EPU holds more weight and influence than the EPU originating from the United States of America. Research limitations/implications: The findings provide useful insights to policymakers about the potential impact of policy uncertainty on corporate bond yields and enable them to make informed decisions regarding economic policies that maintains financial stability. Understanding the relationship between EPU and corporate bond yields enables investors to optimize their investment decisions in emerging market economies, opens the scope for further research on the interaction between EPU and volatility and other attributes of fixed income markets. Originality/value: Focuses specifically on the emerging market economies in Asia, providing an in-depth analysis of the dynamics and challenges faced by these countries, Explores the influence of both domestic and the USA EPU on corporate bond yields in emerging markets, offering valuable insights into the transmission channels and impact of EPU from various sources. [ABSTRACT FROM AUTHOR]

The present article analyses the balance sheet composition and the evolution of the operational framework of the Macedonian central bank. It shows that the compensating movements on its balance sheet could not be attributed exclusively to domestic liquidity management operations, as in the absence of substantial foreign currency inflows, the central bank has increased foreign reserves through the proceeds arising from the issuance of government bonds denominated in foreign currency on international financial markets. Despite retaining some of the characteristics of a currency board, the absence of a strict commitment to such a regime has allowed the central bank to employ a range of instruments of domestic liquidity management and to maintain relatively tight control over its policy rate. The level of the policy rate under a rigidly fixed exchange rate parity meant to be sustained over time, would however continue to depend on the ability of the authorities to ensure a sufficient level of foreign exchange reserves. [ABSTRACT FROM AUTHOR]

Purpose: This study investigates the reasons behind the very high net interest margins in the Greek banking industry compared to the euro-area, focussing on the association between bank competition and recapitalisations. Design/methodology/approach: The author conducts a dynamic panel analysis covering the period from the early 2000s to 2021, that controls for possible endogeneity and treats for heterogeneity. The author also employs local projections impulse response functions that control for structural changes in Greek banking. Findings: The author finds that low bank competition has contributed to high net interest margins in Greece. Interestingly, the impact of recapitalisations conditional to low bank competition has had a significant further impact on increasing net interest margins, which is a noteworthy case due to several Greek bank recapitalisations in the last ten years. The author's findings are supported by local projections impulse response functions. Originality/value: To mitigate distortions in bank competition, the author argues to accelerate steps toward the direction of the banking union and a common bank regulation framework in the euro-area. [ABSTRACT FROM AUTHOR]

Over the past decade, Lawrence Summers has argued that stagnation cannot be rectified by monetary policy because it is the result of a negative natural rate of interest. This analysis brings together two separate streams of thought: traditions in which stagnation has been connected to excessive saving linked to income distribution, or to diminishing investment demand; and a tradition centred on the natural rate of interest and its relationship to the market rate. However, they remained largely separated until Summers brought them together. Modern discussions of the natural rate stem from Knut Wicksell’s Interest and Prices (1898). However, although he came close to arguing that the natural rate might be negative during cyclical depressions, it was mainly under-consumptionists who argued for the possibility of stagnation. These two strands of thinking came closer in the interwar period but they remained separate. The main advocate of secular stagnation, Alvin Hansen, drew on the American Institutionalist tradition, not Wicksell. Postwar Keynesians did not pursue the idea of a negative natural rate even though Samuelson had provided a theoretical explanation. It was not until Summers that a negative natural rate, income distribution and the possibility of secular stagnation were brought together. [ABSTRACT FROM AUTHOR]

The article describes the origins of the Pasinetti index and Pasinetti rule and links both notions to debates over concerns regarding which socio-economic income group in a modern capitalist economy was being hurt and which broad income class was benefiting from the high interest rate policy, especially during the Volcker era of the 1980s. These were statistical constructs as well as distinct normative concepts that resulted from a close reading of Pasinetti’s original writings published in 1980–81. The purpose of the Pasinetti index was to measure and monitor the actual transfer between the rentier and non-rentier sectors of an economy both cyclically and over the long term. As discussed in some detail, both authors of this article had directly participated in those debates and had basically initiated the early discussions around these concepts among post-Keynesians and other heterodox economists. The first part of our article, after the introduction, is primarily focused on what came to be called the Pasinetti rule, while the following section of the article recounts how the different variants of the Pasinetti index came to be constructed and used. We conclude with a discussion of the possible continued relevance of the Pasinetti norm in today’s world. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to contribute to the analysis concerning how inflation forecasts from different economic agents (professional forecasters and consumers) lead to varying levels of central bank credibility and how it affects the monetary policy interest rate and its expectations. Design/methodology/approach: Based on the Brazilian economy data from June 2007 to May 2022, the authors provide evidence that is useful for search mechanisms that improve the conduct of monetary policy through the management of inflation expectations. The authors perform several ordinary least squares and generalized method of moments regressions inspired by the Taylor rule principle. In brief, the benchmark model considers that the monetary policy interest rate and its expectations respond to departures of inflation expectations to the target (a proxy for central bank credibility) and the level of economic activity. Findings: The main result of the analysis is that inflation expectations from professional forecasters and consumers imply different perceptions of central bank credibility that affect the monetary policy interest rate and expectations for horizons until one year ahead. Originality/value: The novelty that the authors bring from the analysis is that the authors calculate central bank credibility by taking into account the "public beliefs" of different economic agents. Furthermore, the authors analyze the effect of central bank credibility from professional forecasters and consumers on the monetary policy interest rate and its expectations. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to investigate the impact of the Federal Reserve's conventional and unconventional monetary policy shocks on the US unemployment rate. Design/methodology/approach: The authors employ a unified time-varying framework to an extensive data set from 1960 to 2019. Findings: The authors find that both conventional and unconventional monetary policy influence the unemployment rate, but the effects of unconventional monetary policy vary greatly during the first, second and third rounds of quantitative easing (dubbed QE1, QE2 and QE3, respectively). It significantly influenced the unemployment rate in QE3. However, the effects are less persistent than the effects of conventional monetary policy shocks. The impact of unconventional monetary policy transmits to the real economy through conventional interest rates, exchange rates and asset price channels. The responses of unemployment rate are smaller during QE1 and QE2 due to the rise in inflation uncertainty and economic policy uncertainty. Originality/value: The impact of the Fed's unconventional monetary policy shocks on the US unemployment rate during QE1, QE2 and QE3 is time-varying. It is explained by inflation uncertainty and real option channels. [ABSTRACT FROM AUTHOR]

Purpose The evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy.Design/methodology/approach The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries.Findings Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries.Practical implications The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy.Originality/value Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples. [ABSTRACT FROM AUTHOR]

In mineral economics, there is quite broad consensus that market fundamentals (physical supply and demand) explain commodity price fluctuations, particularly in the medium and long term. However, following the recent price boom, some dissent has arisen about the role played by non-fundamentals such as liquidity or money supply in key countries and regions, the financialization of commodities and, particularly, financial speculation. This paper develops an empirical model for the copper market, consisting in a vector autoregression (VAR) with 16 variables, including both fundamentals and non-fundamentals. Since the variables’ impact probably changes over time, the 20 years studied are divided into three periods (1995-2003, 2003-2008, and 2008-2015) separated by two structural breaks related to the Chinese boom and the financial crisis/Great Moderation. The results show that, although the fundamentals are relevant in all the periods analyzed, liquidity and other macroeconomic variables are also necessary in order to understand the level of copper prices and their fluctuations. In the case of financial speculation, the results indicate that its impact was significant only in 2003-2008 and, even then, was smaller than that of the fundamentals and macroeconomic variables, explaining around 9% of the price increase in this period. The results support the conclusion that, for the purposes of modeling and forecasting, current models based only on the fundamentals cannot fully explain price dynamics which are shown to be, in general, more complex than has been assumed by mainstream mineral economics. [ABSTRACT FROM AUTHOR]

I examine spillover of monetary policy on corporate bond yields. Emerging market corporate bond yields are positively associated with the federal funds rate. However, this positive relation is transmitted through the domestic policy rate. If domestic policy rates are held constant, the spillover of US monetary policy on corporate bond yields diminishes. This suggests that domestic policymakers face a tradeoff: if they leave their policy rate unchanged when the Fed hikes, this may have benign consequences for corporate bond yields. However, a higher US policy rate may lead to exchange rate depreciation for emerging market currencies and thus elevated debt burdens for their US dollar debtors. Alternatively, if the Fed hikes and policymakers follow suit, funding conditions for corporates worsen through higher yields. [ABSTRACT FROM AUTHOR]

The aim of this study is to determine the nature of any relationship between renewable energy investment, oil prices, GDP and the interest rate, using a time series approach. We concentrate on three countries with different relationships with the renewable energy sector, with Norway and the UK being oil-exporters for most of the sample and the USA an importer. Following estimation using a VAR model, the results provide evidence of considerable heterogeneity across the countries, with the USA and Norway having a strong relationship between oil prices and renewable energy and the UK no relationship. These results reflect the fact that the USA is predominantly an oil-importer during most of this sample and supports renewable energy relatively less than the other countries, so changes to renewable energy investment reflect other factors in the market such as the price of substitutes to a greater extent than countries where renewable energy receives more government support. Similarly with Norway, where due to its market orientated approach, there is some evidence of the macroeconomy affecting the renewable energy market. The main policy implications from this study are that in countries where there is little support for the renewable energy sector, investment will be more dependent on macroeconomic aspects as well as substitutes such as oil, therefore the authorities will need to potentially increase financial support when oil prices are low or when the economy is in a downturn to ensure investment in RE continues at a constant level. [ABSTRACT FROM AUTHOR]

The rate of interest – the price of money – is said to be a key policy tool. Economics has in general emphasised prices. This theoretical bias results from the axiomatic-deductive methodology centring on equilibrium. Without equilibrium, quantity constraints are more important than prices in determining market outcomes. In disequilibrium, interest rates should be far less useful as policy variable, and economics should be more concerned with quantities (including resource constraints). To investigate, we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth. Examining the relationship between 3-month and 10-year benchmark rates and nominal GDP growth over half a century in four of the five largest economies we find that interest rates follow GDP growth and are consistently positively correlated with growth. If policy-makers really aimed at setting rates consistent with a recovery, they would need to raise them. We conclude that conventional monetary policy as operated by central banks for the past half-century is fundamentally flawed. Policy-makers had better focus on the quantity variables that cause growth. [ABSTRACT FROM AUTHOR]

How does climate-change mitigation affect the aggregate consumption risk borne by future generations? In other words, what is the ‘climate beta’? In this paper we argue using a combination of theory and integrated assessment modelling that the climate beta is positive and close to unity for maturities of up to about one hundred years. This is because the positive effect on the climate beta of uncertainty about exogenous, emissions-neutral technological progress overwhelms the negative effect on the climate beta of uncertainty about the carbon-climate-response, particularly the climate sensitivity, and the damage intensity of warming. Mitigating climate change therefore has no insurance value to hedge the aggregate consumption risk borne by future generations. On the contrary, it increases that risk, which justifies a relatively high discount rate on the expected benefits of emissions reductions. However, the stream of undiscounted expected benefits is also increasing in the climate beta, and this dominates the discounting effect so that overall the net present value of carbon emissions abatement is increasing in the climate beta. [ABSTRACT FROM AUTHOR]

We use the wavelet coherency analysis in order to investigate the relationship between the exchange rate changes and its major financial determinants for selected emerging economies. Our analysis shows that the changes in exchange rate are correlated with interest rate differentials, risk premium, the FED's monetary policy implementation and its policy uncertainty. Moreover, the co-movement between the exchange rate changes and its financial determinants substantially changes across frequencies and over time. The co-movement patterns also vary to a large extent across “fragile” emerging markets. Finally, the strongest co-movement of exchange rate changes is with the risk premium in all countries. [ABSTRACT FROM AUTHOR]

This paper examines the responsiveness of bond yields to changes in debt supply. The preferred-habitat theory predicts a positive relation between the term spread and relative supply of longer term debt, and that this relation is stronger when risk aversion is high. To capture this effect, a time-varying coefficient model is introduced and applied to German bond data. The results support the theoretical predictions and indicate substantial time variation: under high risk aversion, yield spreads react about three times more strongly than when risk aversion is low. The accumulated response of term spreads to a one standard deviation change in debt supply ranges between 4 and 46 basis points. [ABSTRACT FROM AUTHOR]

This study examines the time series behavior of U.S. short- and long-run real ex-post interest rates within a long memory approach with non-linear trends using a long span of monthly and annual data. Overall, our results suggest that U.S. real interest rates are not as persistent as suggested in the literature. The implications of this result are relevant to evaluate both the effectiveness of policy interventions and the theoretical implications of different macroeconomic and financial models. For example, our results are consistent with the main implications of the consumption-based asset pricing models and the Fisher effect. Furthermore, the results point out to the difficulties of the monetary policy to influence interest rates, mainly in the long-run, and thus, highlighting varied interest rate policies across short and long-runs when it comes to affecting the real economy. [ABSTRACT FROM AUTHOR]

Using a time-varying cointegration framework, this paper examines the alleged manipulation of the London interbank offered rate (Libor) during the 2007–2009 financial crisis. Bank quotes are found to be poor indicators of their financing costs in the crisis period. The aberration in the estimated values of the cointegrating and error correction parameters governing the long-run equilibrium relationship between bank quotes and the final Libor suggests banks were submitting lower quotes. Further analysis which controls for an individual bank’s credit risk, market wide credit and liquidity risks, and a common market factor, demonstrate possible evidence of Libor rigging during the crisis period. [ABSTRACT FROM PUBLISHER]

In this paper, we revisit the issue whether U.S. monetary policy is asymmetric by estimating a forward-looking threshold Taylor rule with quarterly data from 1955 to 2015. In order to capture the potential heterogeneity for regime shift mechanism under different economic conditions, we modify the threshold model by assuming the threshold value as a latent variable following an autoregressive (AR) dynamic process. We use the unemployment rate as the threshold variable and separate the sample into two periods: expansion periods and recession periods. Our findings support that the U.S. monetary policy operations are asymmetric in these two regimes. More precisely, the monetary authority tends to implement an active Taylor rule with a weaker response to the inflation gap (the deviation of inflation from its target) and a stronger response to the output gap (the deviation of output from its potential level) in recession periods. The threshold value, interpreted as the targeted unemployment rate of monetary authorities, exhibits significant time-varying properties, confirming the conjecture that policy makers may adjust their reference point for the unemployment rate accordingly to reflect their attitude on the health of general economy. [ABSTRACT FROM AUTHOR]

The constant natural interest rate assumption implicit in Taylor type feedback rules to assess the stance of monetary policy could be misleading at times, particularly because of the time-varying nature of the natural interest rate. In the post crisis period, reflecting a complex web of supply side, demand side, regulatory and global factors, natural rates of both advanced and emerging economies have been estimated in the literature to have altered considerably. Using a theoretical framework that combines the essence of Ramsay’s growth model and the New-Keynesian macro-dynamics, and applying the Kalman filter estimation technique, this paper finds that India’s estimated natural real interest rate in Q4 of 2014–2015 lied in a range of 0.6%–3.1%, even though core estimates point to a narrower range of 1.6%–1.8%. These estimates indicate that the real interest rate gap was negative in India for a major part of the last about ten years when CPI inflation was persistently high, implying that monetary policy stance of the Reserve Bank was largely accommodative rather than anti-inflationary. [ABSTRACT FROM AUTHOR]

Long-term interest rates in Europe fell sharply in 2014 to historically low levels. This development is often attributed to yield-chasing in anticipation of quantitative easing by the European Central Bank. We examine how portfolio adjustments by long-term investors aimed at containing duration mismatches may have acted as an amplification mechanism in this process. Declining long-term interest rates tend to widen the negative duration gap between the assets and liabilities of insurers and pension funds, and any attempted rebalancing by increasing asset duration results in further downward pressure on interest rates. Evidence from the German insurance sector is consistent with such an amplification mechanism. [ABSTRACT FROM AUTHOR]

This study explores the impacts of foreign capital inflows on the USA mortgage interest rates. I find evidence that foreign capital flows are significantly and negatively related to 30-year mortgage interest rates. The evidence on the extent of the responsiveness of the interest rates to the foreign capital inflows depends on the type and magnitude of the capital inflows. Official capital flows to the Treasury and agency bonds do appear to have a significant influence on the mortgage interest rates in the VAR model specifications. Private capital inflows to the US agency bonds have significant impact on the long term mortgage rates. Private capital inflows to agency bonds do not significantly and consistently affect mortgage interest rates and Treasury yields. The relatively weaker importance of the private inflows in influencing the rates may be due to its smaller size compared with the official inflows. The results are robust for alternative model specifications. [ABSTRACT FROM AUTHOR]

Purpose The purpose of this paper is to analyze the conduct of monetary policy in Brazil and estimate the country’s neutral real interest rate.Design/methodology/approach The authors make use of a state-space macroeconomic model representation.Findings The period of analysis goes from 2003 up to the end of 2013 and the results show that the country’s natural rate of interest was around 4.2 percent in December 2013.Originality/value One of the main differences of this work is the inclusion of variables such as the real exchange rate and world interest rate. This is important because these variables play an important role in the definition of the interest rate and, consequently, in the definition of the neutral interest rate. [ABSTRACT FROM AUTHOR]

Under the classical gold standard (1880–1914), the Bank of France maintained a stable discount rate while the Bank of England changed its rate very frequently. Why did the policies of these central banks, the two pillars of the gold standard, differ so much? How did the Bank of France manage to keep a stable rate despite international constraints? This paper tackles these questions and shows that the domestic asset portfolio of the Bank of France played a crucial role in smoothing international shocks and in maintaining the stability of the discount rate. As a result, the French discount rate was only changed in exceptional circumstances, for which a change in the English rate was not a sufficient condition. [ABSTRACT FROM AUTHOR]

This paper attempts to evaluate the impact of fiscal policy announcements by the Italian government on the long-term sovereign bond spread of Italy relative to Germany. After collecting data on relevant fiscal policy announcements, we perform an econometric comparative analysis between the three administrations that followed one another during the period 2009–2013. The results indicate that only fiscal policy announcements made by members of Monti's cabinet had a significant impact on the Italian spread. We argue that these findings may be partly explained by a credibility gap between Monti's technocratic administration and Berlusconi's and Letta's governments. [ABSTRACT FROM AUTHOR]

Uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the Expected Net Present Value (ENPV) framework. Despite being controversial, this approach has influenced both the Inter-Agency Working Group on Cost–Benefit Analysis and the UK government׳s guidelines on discounting. We first clarify the theoretical basis of the ENPV approach. Then, rather than following previous work which used a single series of U.S. Treasury bond returns, we treat nominal interest rates and inflation as co-integrated series and estimate the empirical term structure of discount rates via the ‘Fisher Effect’. This nests previous empirical models and is more flexible. It also addresses an irregularity in previous work which used data on nominal interest rates until 1950, and real interest rates thereafter. As we show, the real and nominal data have very different time series properties. This paper therefore provides a robustness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting. The policy implications are discussed in the context of the Social Cost of Carbon, nuclear decommissioning and public health. [ABSTRACT FROM AUTHOR]

We evaluate the liquidity preference hypothesis (LPH) for the term structure of interest rates in a different way. Instead of using bond returns as traditional approaches, we use interest rate surveys with market expectations in order to evaluate LPH. This approach allows us to disentangle the effect of the changes in interest rate expectations from the liquidity premium. We found empirical support for the LPH with Brazilian data using both traditional and survey methods. However, the evaluation with interest rate surveys gives a higher statistical confidence level than the traditional approach when we perform tests for term premium monotonicity. [ABSTRACT FROM AUTHOR]

Campbell and Shiller (1987) and Hall et al. (1992) suggest that the term spread of long-term and short-term interest rates should be a stationary I(0) process. However, an empirically nonstationary term spread or rejection of cointegration between long and short term interest rates need not to be considered an empirical rejection of this theoretical relationship. It is likely that the dichotomy between I(1) or I(0) and/or integer values of cointegration are environments which are too restrictive to model the term structure. To overcome this problem, we propose a residual-based approach to test for the null of no cointegration against a fractional alternative which relies on the Exact Local Whittle Estimator (Shimotsu and Philllips, 2005, 2006). We compare its performance to other residual-based tests for fractional cointegration, and then we use it to investigate the term structure in the U.K and the U.S. [ABSTRACT FROM AUTHOR]

The dynamic Nelson–Siegel (DNS) model and even the Svensson generalization of the model have trouble in fitting the short maturity yields and fail to grasp the characteristics of the Japanese government bonds yield curve, which is flat at the short end and has multiple inflection points. Therefore, a closely related generalized dynamic Nelson–Siegel (GDNS) model that has two slopes and curvatures is considered and compared empirically to the traditional DNS in terms of in-sample fit as well as out-of-sample forecasts. Furthermore, the GDNS with time-varying volatility component, modeled as standard EGARCH process, is also considered to evaluate its performance in relation to the GDNS. The GDNS model unanimously outperforms the DNS in terms of in-sample fit as well as out-of-sample forecasts. Moreover, the extended model that accounts for time-varying volatility outpace the other models for fitting the yield curve and produce relatively more accurate 6- and 12-month ahead forecasts, while the GDNS model comes with more precise forecasts for very short forecast horizons. [ABSTRACT FROM AUTHOR]

We examine the dynamics of emerging market (EM) local currency government bond yields for the last decade and a half as well as for three different phases (January 2000–December 2007, January 2008–April 2013, and since May 2013). We show that domestic factors have anchored EM local currency government bond yields, increasing the potential diversification benefit. Moreover, these yields have become relatively resilient to global risk aversion shocks. Yet, EM local currency government bond yields have been affected partly by very low US Treasury yields and are susceptible to the latter's increases. [ABSTRACT FROM AUTHOR]

This study examines whether real interest rates exhibit changes in persistence for a panel of Organization of Economic Cooperation and Development countries. The findings show that for long-term real interest rates there are changes in persistence from I(0) to I(1). For short-term real interest rates, the results display the absence of changes in persistence, while under cross-sectional dependence there is only weak evidence of changes in persistence from I(1) to I(0). The evidence of changes in persistence when the direction is considered unknown is even weaker. [ABSTRACT FROM AUTHOR]

We model two regimes using threshold cointegration and threshold vector error correction model for sovereign CDS and equity markets of thirteen emerging markets. We document evidence of momentum in cointegration relationships in CDS and equity markets of all countries. We find that positive and negative divergences adjust to equilibrium relationship at different speeds and magnitudes depending on the regime. Moreover, the short and long run adjustment process of each asset is nonlinear and regime dependent. Linear modeling may ignore the differential reaction of investors and policy makers and the time-varying market conditions under which economic and investment decisions take place [ABSTRACT FROM AUTHOR]

A new variant of the LIBOR market model is implemented and calibrated simultaneously to both at-the-money and out-of-the-money caps and swaptions. This model is a two-factor version of a new class of the almost Markovian LIBOR market models with properties long sought after: (i) the almost Markovian parameterization of the LIBOR market model volatility functions isuniqueandasymptotically exactin the limit of a short time horizon up to a few years, (ii) only minimum plausible assumptions are required to derive the implemented volatility parameterization, (iii) the calibration yields very good results, (iv) the calibration is almost immediate, (v) the implemented LIBOR market model has a related short-rate model. Numerical results for the two-factor case show that the volatility functions for the LIBOR market model can be imported into its short-rate model cousin without adjustment. [ABSTRACT FROM AUTHOR]

The present paper sheds further light on a well-known (alleged) violation of the expectations hypothesis of the term structure (EHT): the frequent finding of unit roots in interest rate spreads. We show that the EHT implies (i) that the nonstationarity stems from the holding premium, which is hence (ii) cointegrated with the spread. In a stochastic discount factor framework, we model the premium as being driven by the integrated variance of excess returns. Introducing the concept of mean-variance cointegration, we actually find cointegration relations between the conditional first and second moment of US bond data. [ABSTRACT FROM AUTHOR]

This paper investigates the influence of oil demand, oil supply, and risk-driven shocks on the yield curve in the US between 1995 and 2020. The US term-structure shape is modeled by three structural factors, the level, slope, and curvature. Their empirical analysis is performed according to the Diebold-Li modified variant of the widely used Nelson-Siegel model. The technique of wavelet analysis allows investigating the interrelation of shocks in oil prices and the US yield curve along time and frequency domains, simultaneously. We report on low, medium, and high coherence zones, relative to the oil price movements and the changes in the three yield-curve factors. The low coherence intervals indicate the potential for the three latent factors to be used for creating diversification strategies capable of hedging adverse dynamics in the oil market, potentially workable through global crises. We document the variability of dynamic patterns observable for the US sovereign yield factors on per-type-of-shock basis, evidencing the potential role of the US sovereign debt investments for designing cross-asset hedge strategies for commodity and fixed-income markets. [ABSTRACT FROM AUTHOR]

Recent researches in Sub-Saharan Africa have indicated that interest rate spreads have remained high and are even increasing in most countries in spite of financial liberalization. This study, using alternative definitions of interest rate spread and time series dataset, empirically investigated the factors that influence the level of interest rate spread in Nigeria by means of regression analysis. The analysis showed that two determinants: bank-specific operating expenses and the industry-specific need for consistent growth of shareholders' net worth explain the high spread in interest rates. Another finding is ISw3 (a definition of interest rate spread which includes fees and commissions) best represents intermediation cost. The findings suggest that the banking industry is not efficient or competitive, and as long as the banks can make profits without being efficient, the observed disconnection between the growth of the financial sector and that of real sector will undermine long term growth of the economy. It is, therefore, recommended that alternative sources of financial intermediation of non-bank type including capital market should be developed to support the real sector. [ABSTRACT FROM AUTHOR]