Despite the single currency, yields on government bonds in the Euro Area deviate substantially from German bond yields. These bond spreads are usually attributed to differing default and liquidity risks. The empirical literature documents that evaluation of these risks is subject to time variation in global factors approximated by US corporate bond spreads or short term interest rates. Within t...

This paper examines, for the Brazilian case, if break-even inflation rates (BEIR) extracted from fixed income securities is an unbiased estimator of consumer inflation, measured by the CPI. Our estimates suggest that BEIRs are informative about future inflation, especially for the maturity of three months. The main innovation of our work, however, is the method used for estimation, allowing us ...

This paper estimates a joint econometric model of consumption growth and long-term real interest rates with stochastic volatility based on data from the U.K. The model imposes no-arbitrage condition on the term structure of real interest rates and extends the standard long-run risk model which assumes constant market prices of risk. We find that both the long-run consumption risk and the volati...

This paper provides clear cut evidence that the slope and curvature factors of the yield curve contain more information about future changes in economic activity than the term spread alone, often used in practice as an indicator of future economic conditions. These two factors constitute independent sources of information about future economic activity, which are o¤set to each other in term spr...

This study assesses the short and long-run behaviour of long-term sovereign bond yields in OECD countries, for the period 1973-2008. We employ a dynamic panel approach to reflect financial and economic integration, and to increase the performance and accuracy of the tests. Given the existence of cross-country dependence regarding sovereign yields and its determinants, we resort to simulation an...

This paper adopts a New Keynesian approach to analyze the relationship between nominal interest rates and prices. In this new framework, both a positive relation between interest rates and price levels (i.e., a positive Gibson effect) and a negative relation between interest rates and subsequent price changes (i.e., a negative Fama-Fisher effect) arise when money is supplied inelastically and p...

The Great Moderation refers to the fall in U.S. output growth volatility in the mid-1980s. At the same time, the United States experienced a moderation in inflation and lower average inflation. Using annual data since 1890, we find that an earlier 1946 moderation in output and consumption growth was comparable to that of 1984. To assess the impact of these moderations, we also isolate the 1969–...

To simultaneously account for the properties of interest-rate term structure and foreign exchange rates within one arbitrage-free framework, we propose a class of multicurrency quadratic models (MCQM) with an (m+ n) factor structure in the pricing kernel of each economy. The m factors model the term structure of interest rates. The n factors capture the portion of the exchange rate movement tha...

This paper motivates and introduces a two-stage method for estimating diffusion processes based on discretely sampled observations. In the first stage we make use of the feasible central limit theory for realized volatility, as recently developed in Barndorff-Nielsen and Shephard (2002), to provide a regression model for estimating the parameters in the diffusion function. In the second stage t...

Woodford (2007) argues that it is not appropriate to regard inflation in the steady state of New Keynesian models as determined by steady-state money growth. Woodford instead argues that the intercept term in the monetary authority’s interest-rate policy rule determines steady-state inflation. In this paper, I offer an alternative interpretation of steady-state behavior, according to which it i...