expectations

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.

"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 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.

New Economic Letter: A Conundrum in the Bond Market?

Why have long-term interest rates been falling throughout much of 2017, while the Federal Reserve has been normalizing monetary policy? At first sight, the combination of rising short rates and falling long rates seems puzzling, and even vaguely reminiscent of the famous Greenspan conundrum. But this time around, there are some good reasons that explain the flattening of the yield curve, which I discuss in my most recent Economic Letter.