Macro Risks and the Term Structure | E-Axes
 

Search
Login
Username:
Password:
Not a member yet? Click here.
Forgot your Password?
Archives - Categories
Home
On Inequality
On the Eurozone Debt Crisis
On Monetary Policy and Central Banking
On Global Economic Growth
On the Greek Debt Crisis
On the Banking and Financial Sectors
On Brexit
On China
On India
On Global Inflation
On Currencies
On the US Debt
On the "Economics" of the Arab Spring
Blogs
Working Papers
Books
Books suggested by members



Macro Risks and the Term Structure

date Date: May 7, 2015
date Author(s): Geert Bekaert, Eric Engstrom, Andrey Ermolov
date Affiliation: Columbia University - Board of Governors of the Federal Reserve System
Abstract

We extract aggregate supply and demand shocks for the US economy from data on inflation and real GDP growth. Imposing minimal theoretical restrictions, we obtain identification through exploiting non-Gaussian features in the data. The risks associated with these shocks together with expected inflation and expected economic activity are the key factors in a tractable noarbitrage term structure model. Despite non-Gaussian dynamics in the fundamentals, we obtain closed-form solutions for yields as functions of the state variables. The time variation in the covariance between inflation and economic activity, coupled with their non-Gaussian dynamics leads to rich patterns in inflation risk premiums and the term structure. The macro variables account for over 70% of the variation in the levels of yields, with the bulk attributed to expected GDP growth and inflation. In contrast, macro risks predominantly account for the predictive power of the macro variables for excess holding period returns.

Download 


© 2011–2017 e-axes. All rights reserved. | Credits | Contact Us | Privacy Statement | Fri 19 Jan, 2018 19:08:37 PM
e-axes is proudly powered by Norder - Creative Solutions