Dewachter, Hans and Iania, Leonardo (2009): An Extended MacroFinance Model with Financial Factors.
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Abstract
This paper extends the benchmark MacroFinance model by introducing, next to the standard macroeconomic factors, additional liquidityrelated and return forecasting factors. Liquidity factors are obtained from a decomposition of the TED spread while the return forecasting (risk premium) factor is extracted by imposing a single factor structure on the oneperiod expected excess holding returns. The model is estimated on US data using MCMC techniques. Two findings stand out. First, the model outperforms significantly most structural and nonstructural MacroFinance yield curve models in terms of crosssectional fit of the yield curve. Second, we find that financial shocks, either in the form of liquidity or risk premium shocks have a statistically and economically significant impact on the yield curve. The impact of financial shocks extends throughout the yield curve and is most pronounced at the high and intermediate frequencies.
Item Type:  MPRA Paper 

Original Title:  An Extended MacroFinance Model with Financial Factors 
Language:  English 
Keywords:  Term structure, Macrofinance, TED spread, Interbank lending rates 
Subjects:  E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E43  Interest Rates: Determination, Term Structure, and Effects G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E44  Financial Markets and the Macroeconomy C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C11  Bayesian Analysis: General 
Item ID:  17634 
Depositing User:  leonardo iania 
Date Deposited:  02. Oct 2009 16:49 
Last Modified:  23. Feb 2013 05:59 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/17634 
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