Dewachter, Hans and Iania, Leonardo (2009): An Extended Macro-Finance Model with Financial Factors.
Download (598kB) | Preview
This paper extends the benchmark Macro-Finance model by introducing, next to the standard macroeconomic factors, additional liquidity-related 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 excess holding returns. The model is estimated on US data using MCMC techniques. Two findings stand out. First, the model outperforms Macro-Finance benchmark models in fitting the yield curve. Second, financial shocks, either in the form of liquidity or risk premium shocks, have a statistically and economically significant impact on the yield curve.
|Item Type:||MPRA Paper|
|Original Title:||An Extended Macro-Finance Model with Financial Factors|
|Keywords:||Term structure, Macro-finance, 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
|Depositing User:||leonardo iania|
|Date Deposited:||24. Nov 2009 00:41|
|Last Modified:||15. Feb 2013 20:21|
Ang, A., Dong, S. & Piazzesi, M. (2007), No-arbitrage taylor rules, Working Paper 13448, National Bureau of Economic Research.
Ang, A. & Piazzesi, M. (2003), "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables", Journal of Monetary Economics 50(4).
Backus, D. K. & Wright, J. H. (2007), "Cracking the conundrum", SSRN eLibrary .
Bekaert, G., Cho, S. & Moreno, A. (2006), "New-keynesian macroeconomics and the term structure", SSRN eLibrary .
Campbell, J. Y., Shiller, R. J. & Viceira, L. M. (2009), Understanding inflation-indexed bond markets, Brookings Papers on Economic Activity.
Chib, S. & Ergashev, B. (2008), "Analysis of multi-factor affine yield curve models", SSRN eLibrary .
Christensen, J. H. E., Lopez, J. A. & Rudebusch, G. D. (2009), Do central bank liquidity facilities affect interbank lending rates?, Working Paper Series 2009-13, Federal Reserve Bank of San Francisco.
Cochrane, J. H. & Piazzesi, M. (2005), Bond risk premia, American Economic Review 95(1).
Cochrane, J. H. & Piazzesi, M. (2009), Decomposing the yield curve, SSRN eLibrary .
Dai, Q. & Singleton, K. J. (2000), Speci�cation analysis of a¢ ne term structure models, The Journal of Finance 55(5), 1943�1978.
Dewachter, H. (2008), Imperfect information, macroeconomic dynamics and the yield curve : an encom- passing macro-�nance model, Research series 200810-19, National Bank of Belgium.
Dewachter, H. & Lyrio, M. (2006), "Macro factors and the term structure of interest rates", Journal of Money, Credit and Banking 38(1).
Dewachter, H. & Lyrio, M. (2008), Learning, macroeconomic dynamics, and the term structure of interest rates, Asset prices and monetary policy, NBER.
Dewachter, H., Lyrio, M. & Maes, K. (2006), A joint model for the term structure of interest rates and the macroeconomy, Journal of Applied Econometrics 21(4).
Doh, T. (2006), Estimating a structural macro finance model of the term structure.
Duffee, G. R. (2002), Term premia and interest rate forecasts in a¢ ne models, The Journal of Finance 57(1).
Du¤ee, G. R. (2009), Information in (and not in) the term structure.
Feldhütter, P. & Lando, D. (2008), Decomposing swap spreads, Journal of Financial Economics 88(2).
Geweke, J. (1999), Using simulation methods for bayesian econometric models: inference, develop- ment,and communication, Econometric Reviews 18(1).
Graeve, F. D., Emiris, M. & Wouters, R. (2009), A structural decomposition of the us yield curve, Journal of Monetary Economics 56(4),.
Gürkaynak, R. S., Sack, B. & Wright, J. H. (2007), The u.s. treasury yield curve: 1961 to the present, Journal of Monetary Economics 54(8.
Harvey, A. C. (1991), Forecasting, Structural Time Series Models and the Kalman Filter, Cambridge University Press.
Hordahl, P., Tristani, O. & Vestin, D. (2006), A joint econometric model of macroeconomic and term- structure dynamics, Journal of Econometrics 131(1-2).
Joslin, S., Priebsch, M. & Singleton, K. J. (2009), Risk premium accounting in macro-dynamic term structure models.
Kim, D. H. & Orphanides, A. (2005), Term Structure Estimation with Survey Data on Interest Rate Forecasts, SSRN eLibrary .
Kozicki, S. & Tinsley, P. A. (2001), Shifting endpoints in the term structure of interest rates, Journal of Monetary Economics 47(3).
Laubach, T. & Williams, J. C. (2003), Measuring the natural rate of interest, The Review of Economics and Statistics 85(4).
Longstaff, F. A., Liu, J. & Mandell, R. E. (2006), The market price of credit risk: An empirical analysis of interest rate swap spreads, Journal of Business 79(5).
Rudebusch, G. D. & Wu, T. (2008), A macro-�nance model of the term structure, monetary policy and the economy, The Economic Journal 118, 906�926.
Trehan, B. & Wu, T. (2007), Time-varying equilibrium real rates and monetary policy analysis, Journal of Economic Dynamics and Control 31.
Available Versions of this Item
- An Extended Macro-Finance Model with Financial Factors. (deposited 24. Nov 2009 00:41) [Currently Displayed]