This paper presents a regime-switching model of the yield curve with two states. One is a normal state, the other is a zero-bound state that represents the case when the monetary policy target rate is at its zero lower bound for a prolonged period. The model delivers estimates of the time-varying probability of exiting the zero-bound state, and it outperforms standard threeand four-factor term ...

We build and estimate a recursive utility equilibrium model of the term structure of interest rates that prices consistently all risk factors that affect bonds. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints. In both models, nominal bond yields are affine functions of macroeconomic state variables. The equilibrium model acco...

iranian banks can not freely determine their interest rates in the financial market. this characteristic causes banking industry unable to perform their duties of financial intermediaries in the transmission mechanism of monetary. in these circumstances, monetary shocks will have a significant and high effect on the alternative markets (like stocks and housing). in this study, we used dynamic s...

This note examines the stochastic properties of US term spreads with parametric and semiparametric fractional integration techniques. Since the observed data (rather than the estimated residuals from a cointegrating regression) are used for the analysis, standard methods can be applied. The results indicate that US Treasury maturity rates are I(1) in most cases, although the order of integratio...

This paper introduces a new class of matrix-valued affine jump diffusions that are convenient for modeling multivariate risk factors in many financial and econometric problems. We provide an analytical transform analysis for this class of models, leading to an analytical treatment of a broad class of multivariate valuation and econometric problems. Examples of potential applications include fix...

The real exchange rate real interest rate (RERI) relationship is central to most open economy macroeconomic models. However, empirical support for the relationship, especially when cointegrationbased methods are used, is rather weak. In this paper we reinvestigate the RERI relationship using bilateral real exchange rate data spanning the period 1978 to 1997. We first clarify the logic of applyi...

We formulate a consumption-based asset pricing model in which aggregate risk aversion is time-varying in response to both news about consumption growth (as in a habit formation model) and news about inflation. We estimate our model and explore its pricing implications for the term structure of interest rates and the cross-section of stock returns. Our empirical results support the hypothesis th...

Many central banks around the world have adopted a framework for implementing monetary policy that involves targeting a value for the overnight rate on unsecured loans of reserves between banks. The financial crisis wrecked havoc in this market and central banks responded, in part, by flooding the system with reserves, driving rates lower. We extend the canonical model of implementation of mone...

Premiums on U.S. sovereign CDS have risen to persistently elevated levels since the financial crisis. We ask whether these premiums reflect the probability of a fiscal default – a state in which budget balance can no longer be restored by raising taxes or eroding the real value of debt by raising inflation. We develop an equilibrium macrofinance model in which the fiscal and monetary policy sta...

New Neoclassical Synthesis models equate the instrument of monetary policy to the implied CCAPM rate arising from a standard model with power utility. This paper identifies monetary policy shocks using a multi country dataset and examines the movement of money market and implied CCAPM rates. We find that an increase in the nominal interest rate leads to a fall in the implied CCAPM rate. Incorpo...