Term structure modelling with observable state variables

Huse, Cristian

doi:10.1016/j.jbankfin.2011.05.004

Cited by 13 publications

(12 citation statements)

References 70 publications

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“…Thiele and Fernandes (2015) analyze the macroeconomic determinants of the term structure of inflation expectations in Brazil. They employ Huse's (2011) yield curve model to estimate the impact of exchange rate, inflation, commodity prices and Brazil CDS on the breakeven inflation rates over different horizons. Their results evince that macroeconomic shocks affect the term structure of inflation expectations in a different manner according to the horizon.…”

Section: Related Workmentioning

confidence: 99%

Disagreement in Inflation Forecasts and Inflation Risk Premia in Brazil

Doi¹,

Fernandes²,

Nunes³

2017

Brazilian Review of Econometrics

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The aim of this study is to investigate the link between the inflation risk premia implied by the term structures of nominal and real interest rates in Brazil and disagreements in inflation forecasts. We gauge the former by the difference between the breakeven inflation rate and agents' inflation median expectations in the Focus Survey published by the Central Bank of Brazil. To proxy for disagreement, we employ the standard deviation of the 12-month inflation expectations in the Focus Survey. We first estimate the impact of disagreement on inflation risk premia across different horizons using a VAR approach. We find that shocks in inflation forecast disagreement significantly affect the 9-, 12-, 24-and 36-month inflation risk premia. The impact is positive, increasing with maturity at least up to 12 months. We then estimate an alternative VAR specification that summarizes the term structure of inflation risk premia by means of level, slope and curvature factors. It turns out that shocks in disagreement do not affect the slope and curvature factors, resulting only in parallel shifts in the inflation premium term structure. This is in line with the fact that the higher the dispersion in inflation expectations, the higher is the compensation that investors will require to hold fixed rate bonds.

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Section: Related Workmentioning

confidence: 99%

Disagreement in Inflation Forecasts and Inflation Risk Premia in Brazil

Doi¹,

Fernandes²,

Nunes³

2017

Brazilian Review of Econometrics

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“…As in previous studies (see e.g. Bernanke et al ., ; Chen, ; Huse, ; Favero et al ., ), besides the three latent factors, which are the level ( L ), the slope ( S ) and the curvature ( C ) of the yield curve, the present study also incorporates five macroeconomic variables and a fiscal variable ( FB ) in the VAR system. Macroeconomic variables include: inflation ( pi ), output growth ( p ), consumption growth ( cn ), investment growth ( i ) and foreign trade growth ( e ).…”

Section: Vector Autoregressive Modelsmentioning

confidence: 99%

“…Industrial production growth is a reasonable proxy for output growth (see e.g. Chen, ; Huse, ; Favero et al ., ). Data for macroeconomic variables and fiscal variables are from WIND database.…”

Section: Vector Autoregressive Modelsmentioning

confidence: 99%

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The Sovereign Yield Curve and Fiscal Behaviour in China

Yan

Guo

2016

Pacific Economic Review

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The present study aims to explore the relationship between the sovereign yield curve and fiscal behaviour in China. The Chinese Government is very powerful, and fiscal policy plays an important role in China's economy. A dynamic Nelson–Siegel model is adopted to estimate the level, slope and curvature factors of the yield curve. Three aspects of fiscal behaviour, including government spending, revenue and budget balance, are considered. Significant relationships between fiscal behaviour and the sovereign yield curve are found and described in the present study. Higher government expenditure raises the level and slope factors of the yield curve, while increasing government revenue reduces the level factor and enhances the slope factor. Furthermore, improved budget balance decreases the level and slope factors of the yield curve. Fiscal behaviour also interacts with the macroeconomy in China. Fiscal policy is insensitive to price surges in contrast to the strong responses of monetary policy to higher inflation. In addition, crowding‐out effects of government spending are demonstrated in this study.

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“…As an example, Ang and Piazzesi (2003), Bansal, Tauchen, and Zhou (2004) and Huse (2011) have shown that macroeconomic factors measuring real economic activity can help to predict future movements in the yield curve. In contrast, Estrella and Mishkin (1998) and Rudebusch and Williams (2009), among others, have found that the term spread between the long-term and short-term interest rates is the main leading indicator of the future state of the business cycle.…”

Section: Introductionmentioning

confidence: 99%

Forecasting US interest rates and business cycle with a nonlinear regime switching VAR model

Nyberg

2017

Journal of Forecasting

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This paper introduces a regime switching vector autoregressive model with time-varying regime probabilities, where the regime switching dynamics is described by an observable binary response variable predicted simultaneously with the variables subject to regime changes. Dependence on the observed binary variable distinguishes the model from various previously proposed multivariate regime switching models, facilitating a handy simulation-based multistep forecasting method. An empirical application shows a strong bidirectional predictive linkage between US interest rates and NBER business cycle recession and expansion periods. Due to the predictability of the business cycle regimes, the proposed model yields superior out-of-sample forecasts of the US short-term interest rate and the term spread compared with the linear and nonlinear vector autoregressive (VAR) models, including the Markov switching VAR model.

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Term structure modelling with observable state variables

Cited by 13 publications

References 70 publications

Disagreement in Inflation Forecasts and Inflation Risk Premia in Brazil

Disagreement in Inflation Forecasts and Inflation Risk Premia in Brazil

The Sovereign Yield Curve and Fiscal Behaviour in China

Forecasting US interest rates and business cycle with a nonlinear regime switching VAR model

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