Working Papers

New paper on skewness in interest rates

Mike Chernov and I have written a paper on the information content in option-implied skewness. We find that conditional skewness is closely related to financial conditions and monetary policy, but contains substantial additional predictive power for future interest rates, bond returns, and survey forecast errors. Our findings can be rationalized in a simple model with biased beliefs. The paper is available here.

New paper on social discount rates and climate change

Glenn Rudebusch and I have written a paper that takes a macro-finance perspective of social discount rates. Our main point is that the secular decline in the equilibrium real interest rate has lowered all discount rates and boosted the present value of future damages from climate change. The paper is available here.

New paper on (or rather against) the "Fed Information Effect"

Eric Swanson and I have written a new paper where we question the evidence for the “Fed information effect” documented in the recent macro-finance literature. We propose an alternative channel that explains the available evidence, namely that the Fed simply responds to publicly available economic news. We call it the “Fed response to news” channel and present strong new evidence in favor of this channel and against the “Fed information effect.

New version of "Market-Based Monetary Policy"

We substantially revised our working paper “Market-Based Monetary Policy Uncertainty” and posted the new version online. The new version of the paper, which is coauthored with Aeimit Lakdawala and Philippe Mueller, not only includes several new results, but in addition features a simple model for the short-term interest rate with jumps around FOMC announcements, which is helpful for interpreting our empirical findings on the resolution of uncertainty and the FOMC uncertainty cycle.

"Interest Rates Under Falling Stars" forthcoming in American Economic Review

My paper with Glenn Rudebusch “Interest Rates Under Falling Stars” was accepted for publication in the American Economics Review. The paper, supplemental appendix, and complete replication data and code are available here.

New revision of "Interest Rates Under Falling Stars"

Glenn Rudebusch and I finished another round of revisions of our paper “Interest Rates Under Falling Stars” which we just sent back to the American Economics Review. This version includes a lot more details about our novel yield-curve model with a time-varying trend. We will make the complete data and code available once the paper is published. You can download the new version of the paper here.

New working paper: Market-Based Monetary Policy Uncertainty

Together with my coauthors Aeimit Lakdawala and Philippe Mueller I have written a new paper on “Market-Based Monetary Policy Uncertainty” which you can download here. We propose a new, market-based measure of the uncertainty about future monetary policy decisions, using prices of Eurodollar options. Using this novel measure in hand we document new stylized facts about the role of uncertainty for the transmission of monetary policy to financial markets. Particularly intruiging, in my view, is a substantial drop in uncertainty around FOMC announcements, a finding that could be used to create a profitable trading strategy.

New version of "Interest Rates Under Falling Stars"

Glenn Rudebusch and I finished a new version of our paper “Interest Rates Under Falling Stars” which includes a lot of new material. Most importantly, we developed a new model for the yield curve that allows for shifting long-run trends and provides a new, fully Bayesian estimate of the equilibrium nominal interest rate $i^\ast$. You can download the new version of the paper here.