Close-to-zero interest rates challenge standard economic models in which zero lower bound (ZLB) is absent. We estimate a recursive utility model which features time-varying latent expected real growth, expected inflation, and stochastic inflation volatility. Using an approximate solution to bond...

This paper exploits the term structures of treasury yields to extract information about macroeconomic dynamics during the effective lower bound period (ELB). I introduce a new no-arbitrage macro-finance affine model jointly representing stochastic inflation trend and volatilitywith a short-term...

This paper quantifies how variation in real economic activity and inflation in the U.S. influenced the market prices of level, slope, and curvature risks in U.S. Treasury markets. We develop a novel arbitrage-free dynamic term structure model in which bond investment decisions are influenced by...

Asset prices are a valuable source of information about financial market participants.expectations about key macroeconomic variables. However, the presence of time-varying risk premia requires an adjustment of market prices to obtain the market’s rational assessment of future price and policy...

I provide evidence that risks in macroeconomic fundamentals contain valuable information about bond risk premia. I extract factors from a set of quantile-based risk measures estimated for US macroeconomic variables and document that they account for up to 31% of the variation in excess bond...

This paper shows that monetary policy does and should respond systematically to time variation in ex-ante uncertainty and heterogeneity in private sector's views over the business cycle. Empirical tests are initially conducted on the basis of an augmented forward-looking Taylor rule framework,...

This paper shows that monetary policy does and should respond systematically to time variation in ex-ante uncertainty and heterogeneity in private sector's views over the business cycle. Empirical tests are initially conducted on the basis of an augmented forward-looking Taylor rule framework,...

This paper examines how the presence of uncertainty alters allocations and prices when the nominal interest rate is constrained by the zero lower bound. I conduct the analysis using a standard New Keynesian model in which the nominal interest rate is determined according to a truncated Taylor...

Large risk shocks give rise to cost-push effects in the canonical New Keynesian model. At the same time, monetary policy becomes less effective. Therefore, stochastic volatility introduces occasional trade-offs for monetary policy between inflation and output gap stabilisation. The cost-push...