Showing 1 - 10 of 20
We model an economy where stocks and bonds (consols) are traded by two types of agents: speculators, expected utility maximizers always present in the market, and infrequent traders, whose trading motives are not explicitly modeled. A solution technique for equilibrium prices is developed when...
Persistent link: https://www.econbiz.de/10012768617
We explore the link between the overnight fed funds rate, which is actively targeted by the Federal Reserve, and longer-maturity term fed funds rates. We develop a term-structure model which explicitly accounts for interest rate targeting and for the predictability of future target changes. The...
Persistent link: https://www.econbiz.de/10012768626
We assume the short-term rate to revert towards a central tendency which in, turn, is stochastically changing over time. We impose minimal restrictions on the joint behavior of the short-term rate and the central-tendency factor, and derive implications for the term structure of interest rates....
Persistent link: https://www.econbiz.de/10012765829
We assume that the instantaneous riskless rate reverts towards a central tendency which, in turn, is changing stochastically over time, and we derive a model of the term structure of interest rates. Our term-structure model implies that a linear combination of any two rates can be used as a...
Persistent link: https://www.econbiz.de/10012765837
We assume that the instantaneous riskless rate reverts toward a central tendency which, in turn, is changing stochastically over time. As a result, current short-term rates are not sufficient to predict future short-term rates movements, as it would be the case if the central tendency was...
Persistent link: https://www.econbiz.de/10012765864
This paper studies the effects on financial markets of an anticipated fiscal stabilization policy in a stochastic environment. Stabilization is defined as a discrete change in the budget process which is implemented when government consumption reaches some threshold level, known by economic...
Persistent link: https://www.econbiz.de/10012768625
Real money balances are held separately for consumption and portfolio reasons. When real balances are a state variable in the investor s optimization problem, there is a specific inflation-hedging portfolio. An investor hedges against inflation when the effect of real money holdings on the...
Persistent link: https://www.econbiz.de/10012768629
In a variety of realistic scenarios, some investors trade infrequently rather than continuously, basing their buy or sell decisions on current price levels. A acirc;not;Sprice barrieracirc;not;? is a price level at which a large number of investors either buy or sell securities. We analyze the...
Persistent link: https://www.econbiz.de/10012768779
We explore the effects of overnight-rate targeting on nominal interest rates of longer maturities. In a realistic model of noisy targeting and infrequent target changes, expectations of future policy actions introduce persistent spreads between interest rates of different maturities. Some...
Persistent link: https://www.econbiz.de/10012768619
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate when the expectations hypothesis suggests the reverse. Some have attributed this forward premium anomaly to a time-varying risk premium but theory has been largely unsuccessful in...
Persistent link: https://www.econbiz.de/10012765869