This paper analyzes the relationship between the volatility of corporate bond returns and standard financial and macroeconomic indicators reflecting the state of the economy. We employ the GARCHMIDAS multiplicative two-component model of volatility that distinguishes the short-term dynamics from...

We propose a new approach to evaluating the usefulness of a set of forecasts, based on the use of a discrete loss function de…ned on the space of data and forecasts. Existing procedures for such an evaluation either do not allow for formal testing, or use tests statistics based just on the...

In an endogenous growth model with public consumption and public investment, we explore the time-consistent optimal choice for two policy instruments: an income tax rate and the split of government spending between consumption and investment. We show that under the time-consistent, Markov...

In an endogenous growth model with public consumption and investment and an elastic labour supply, we explore the time-consistent optimal choice for two policy instruments: an income tax rate and the split of government spending between consumption and investment. We compare the Markovian...

We analyze the effect of parameter estimation error on the size of unconditional population level tests of predictive ability when they are implemented under a class of loss functions we refer to as ‘discrete functions’. The analysis is restricted to linear models in stationary variables. We...

We characterize the behavior of volatility across the term structure of interest rate swaps in three currencies (Deutsche mark, Japanese yen and US Dollar)

Some characteristics of the term structure in interest rate swap (IRS) markets are influenced by the own idiosyncrasy of this financial instrument, which could explain the rejection of the Expectations Hypothesis, we present evidence supporting the existence of significant, time-varying risk...

We evaluate the extent to which the explanatory power detected in the term structure in different markets and countries can actually be used to produce sensible forecasts of future short-term interest rates. Specifically, in spite of the forecasting connotation of the unbiasedness property of...

We propose a new approach to evaluating the usefulness of a set of forecasts, based on the use of a discrete loss function de…ned on the space of data and forecasts. Exist- ing procedures for such an evaluation either do not allow for formal testing, or use tests statistics based just on the...

This paper studies the determinants of the variance risk premium and concludes on the hedging possibilities offered by variance swaps. We start by showing that the variance risk premium responds to changes in higher order moments of the distribution of market returns. But the uncertainty that...