scholarly journals Imperfect Information, Macroeconomic Dynamics and the Yield Curve: An Encompassing Macro-Finance Model

2008 ◽  
Author(s):  
Hans Dewachter
Keyword(s):  
Imperfect Information ◽  
Yield Curve ◽  
Macroeconomic Dynamics ◽  
Finance Model ◽  
Macro Finance

scholarly journals An Extended Macro-Finance Model with Financial Factors

2011 ◽  
Vol 46 (6) ◽  
pp. 1893-1916 ◽  
Author(s):  
Hans Dewachter ◽  
Leonardo Iania
Keyword(s):  
Monte Carlo ◽  
Risk Premium ◽  
Yield Curve ◽  
Single Factor ◽  
Cross Sectional ◽  
Macroeconomic Factors ◽  
Monte Carlo Techniques ◽  
Financial Factors ◽  
Finance Model ◽  
Macro Finance

AbstractThis paper extends the benchmark macro-finance (MF) 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 money market spread, while the return-forecasting (risk premium) factor is extracted by imposing a single-factor structure on the 1-period expected excess holding return. The model is estimated on U.S. data using Markov chain Monte Carlo techniques. Two findings stand out. First, the model significantly outperforms most structural and nonstructural MF yield curve models in terms of the cross-sectional fit of the yield curve. Second, financial shocks have a statistically and economically significant impact on the yield curve.

scholarly journals Forecasting with Macro-Finance Models: Applications to United States and New Zealand

2021 ◽  
Author(s):  
◽  
Michelle Lewis
Keyword(s):  
Interest Rates ◽  
Real Time ◽  
Recent Literature ◽  
Yield Curve ◽  
Short Term ◽  
Forecast Performance ◽  
Macroeconomic Variables ◽  
Finance Model ◽  
Macro Finance ◽  
Macro Variables

<p>In this thesis, I use macro-finance models to explore the inter-relationships between the macroeconomy and the yield curve in a forecasting setting. Using the arbitrage-free Nelson-Siegel approach to model the yield curve combined with Vector Autoregression (VAR), I jointly model macroeconomic variables and the yield curve factors to produce forecasts of inflation, activity, and interest rates. In line with earlier literature I compare whether the macro-finance model is able to better capture the dynamics of the macro variables and the yield curve factors compared with a macro-only model and a yields-only model respectively. However, a key difference is I use a full real-time forecasting setting, whereas the recent literature focuses on quasi real-time forecasting.  I find there is benefit from using macro-finance models for forecasting macroeconomic variables in real-time but the gain is more significant at longer-term horizons. Indeed, the macro-finance models do not outperform traditional macroeconomic models for forecasting activity at short-term horizons. The forecasting gain is more robust for inflation and the policy rate. The theoretically motivated restrictions on the yield curve dynamics improve the forecast performance of yield curve components and generally macroeconomic variables. Using a quasi real-time environment to assess the forecast performance can overstate the usefulness of macro-finance models and understate the usefulness of placing restrictions on the yield curve dynamics.</p>

scholarly journals Forecasting with Macro-Finance Models: Applications to United States and New Zealand

2021 ◽  
Author(s):  
◽  
Michelle Lewis
Keyword(s):  
Interest Rates ◽  
Real Time ◽  
Recent Literature ◽  
Yield Curve ◽  
Short Term ◽  
Forecast Performance ◽  
Macroeconomic Variables ◽  
Finance Model ◽  
Macro Finance ◽  
Macro Variables

<p>In this thesis, I use macro-finance models to explore the inter-relationships between the macroeconomy and the yield curve in a forecasting setting. Using the arbitrage-free Nelson-Siegel approach to model the yield curve combined with Vector Autoregression (VAR), I jointly model macroeconomic variables and the yield curve factors to produce forecasts of inflation, activity, and interest rates. In line with earlier literature I compare whether the macro-finance model is able to better capture the dynamics of the macro variables and the yield curve factors compared with a macro-only model and a yields-only model respectively. However, a key difference is I use a full real-time forecasting setting, whereas the recent literature focuses on quasi real-time forecasting.  I find there is benefit from using macro-finance models for forecasting macroeconomic variables in real-time but the gain is more significant at longer-term horizons. Indeed, the macro-finance models do not outperform traditional macroeconomic models for forecasting activity at short-term horizons. The forecasting gain is more robust for inflation and the policy rate. The theoretically motivated restrictions on the yield curve dynamics improve the forecast performance of yield curve components and generally macroeconomic variables. Using a quasi real-time environment to assess the forecast performance can overstate the usefulness of macro-finance models and understate the usefulness of placing restrictions on the yield curve dynamics.</p>

The Information Content of a Nonlinear Macro-Finance Model for Commodity Prices

2016 ◽  
Vol 30 (8) ◽  
pp. 2818-2850 ◽  
Author(s):  
Saqib Khan ◽  
Zeigham Khokher ◽  
Timothy Simin
Keyword(s):  
Information Content ◽  
Commodity Prices ◽  
Finance Model ◽  
Macro Finance

scholarly journals The Yield Curve and Macroeconomic Dynamics*

2008 ◽  
Vol 118 (533) ◽  
pp. 1937-1970 ◽  
Author(s):  
Peter Hördahl ◽  
Oreste Tristani ◽  
David Vestin
Keyword(s):  
Yield Curve ◽  
Macroeconomic Dynamics

Understanding the Impact of Monetary Policy in Korea using a Macro-Finance Term Structure Model with

2014 ◽  
Vol 22 (2) ◽  
pp. 161-192
Author(s):  
Woon Wook Jang ◽  
Jaehoon Hahn
Keyword(s):  
Monetary Policy ◽  
Term Structure ◽  
Yield Curve ◽  
Call Rate ◽  
Monetary Policy Shocks ◽  
Macroeconomic Factors ◽  
Term Structure Model ◽  
Term Premium ◽  
Policy Shocks ◽  
Macro Finance

This paper examines the interaction between monetary policy and the macroeconomy using a macro-finance term structure model of Joslin, Priebsch, and Singleton (2012), in which macroeconomic risks are not assumed to be spanned by information about the shape of the yield curve. For model estimation, we apply the Kalman filter to a large number of macroeconomic time series data grouped into output, inflation, and market stress categories and extract three common factors. For the factors determining the shape of the yield curve, we use the call rate, the spread between 10-year government bond yield and the call rate, and a combination of the call rate, 2- and 10-year government bond yields as proxies for the level, slope, and curvature factors. We interpret the call rate as a proxy for both the short rate and the instrument of monetary policy. Empirical results show that the macroeconomic factors have a significant impact on the risk premium associated with monetary policy shocks. Furthermore, we find that monetary policy shocks increase the term premium, which in turn affects the factors determining the yield curve, and such effects on the shape of the yield curve feeds back into the macroeconomic factors. Taken together, empirical findings in this paper can be interpreted as evidence supporting the term premium channel (Ferman, 2011) of monetary policy transmission mechanism.

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