Increases in the federal funds rate aimed at stabilizing the economy have inevitably been followed by recessions. Recently, peaks in the federal funds rate have occurred 6-16 months before the start of recessions; reductions in interest rates apparently occurred too late to prevent those...

This paper revisits the credit spread puzzle for banks from the perspective of information contagion. The puzzle consists of two stylized facts: Structural determinants of credit risk not only have low explanatory power but also fail to capture common factors in the residuals. We reproduce the...

We study the relationship between monetary policy and long-term rates in a structural, general equilibrium model estimated on both macro and yields data from the United States. Regime shifts in the conditional variance of productivity shocks, or "uncertainty shocks", are an important model...

This paper studies the behavior of corporate bond spreads during different market regimes between 2004 and 2016. Applying a Markov-switching vector autoregressive (MS-VAR) model, we document that the dynamic impact of spread determinants varies substantially with market conditions. In periods of...

We investigate the factor structure of the term structure of interest rates and argue that characterizing the minimal dimension of the data-generating process is more challenging than currently appreciated. To circumvent these difficulties, we introduce a novel nonparametric bootstrap that is...

A re-evaluation of the role of interest rates is necessary in the wake of the Great Recession. This paper will re-evaluate the interpretation and empirical use of the yield spread as a predictor of recessions, focusing on the simplified methodology in a New York Federal Reserve Bank paper by...

We examine the credit channel of monetary policy from 2000 to 2015 in the Euro Area using daily monetary policy shock and credit risk measures in an autoregressive distributed lag model. We find that an expansionary monetary policy shock leads to a short-run increase in the credit risk of...

Based on listed companies issuing bonds on the Shanghai and Shenzhen Stock Exchanges from 2007 to 2017, this study analyzes the relationship between significant risk warnings in Chinese companies' annual reports and corporate bond credit spreads. The main findings are as follows. First, in the...

The appearance of negative bond yields presents significant challenges for the fixed income markets, which mainly concern related forecasting models. The Nelson-Siegel-Svensson model (NSS) is one of the models that is most frequently used by central banks to estimate the term structure of...

The European Central Bank (ECB), as part of its forward-looking strategy, needs high-quality financial market statistical indicators as a means to facilitate evidence-based and sound decision-making. Such indicators include timely market intelligence and information to gauge investors'...

We regress long-term private sector interest rates on a money market rate, a term premium and credit risk. As a contribution to the current debate about European safe assets, our interest is in quantifying domestic spillover effects from euro area sovereign bond spreads. Panel estimates show...

We provide evidence that liquidity premia on assets that are more relevant for private agents' intertemporal choices than near-money assets increase in response to expansionary forward guidance announcements. We introduce a structural specification of liquidity premia based on assets'...

Why is an inverted yield-curve slope such a powerful predictor of future recessions? We show that a decomposition of the yield curve slope into its expectations and risk premia components helps disentangle the channels that connect fluctuations in Treasury rates and the future state of the...

The paper extends a standard two-country international real business cycle model to include financial intermediation by banks of loans and government bonds. Taking in household deposits from home and abroad, the loans are produced by the bank in a Cobb-Douglas production approach such that a...

Finance and macroeconomics have different perspectives on the yield curve. In the case of Bosnia and Herzegovina, specific context, data issue and financial market that is in its developing phase, do not allow us to have one, unique perspective. The Nelson-Siegel yield curve model could be...

The zero-coupon yield curve is a common input for most financial purposes. The authors consider three popular yield curve datasets, and explore the extent to which the decision as to what dataset to use for an application may have implications on the results. The paper illustrates why such...

Understanding of volatility term structure is highly relevant both for market agents and policymakers. As traditional methodologies often bring results contradicting situation on the markets, we revisit volatility term structure modeling in univariate case. In this paper we benefit from...

This paper represents the first empirical study to investigate the effects of interest rate spread shocks before and after the implementation of LSAPs (Federal Reserve large-scale asset purchases) on energy consumption for different sectors. The US monthly data (2002–2015) for interest rate...

This paper assesses redenomination risk in the euro area. We first estimate daily default-risk-free yield curves for French, German, and Italian bonds that can be redenominated and for bonds that cannot. Then, we extract the compensation for redenomination risk from the yield spreads between...

We propose a shadow rate that measures the expansionary (contractionary) interest rate effects of unconventional monetary policies that are present when the lower bound is not binding. Using daily yield curve data we estimate shadow rates for the US, Sweden, the euro-area and the UK, and find...

During the global financial crisis, stressed market conditions led to skyrocketing corporate bond spreads that could not be explained by conventional modeling approaches. This paper builds on this observation and sheds light on time-variations in the relationship between systematic risk factors...

Traditional carry trade strategies are based on differences in short-term interest rates, neglecting any other information embedded in yield curves. We derive return distributions of carry trade portfolios among G10 currencies, where the signals to buy and sell currencies are based on summary...

We propose a consumption-based model that allows for an inverted term structure of real and nominal risk-free rates. In our framework the agent is subject to time-varying macroeconomic risk and interest rates at all maturities depend on her risk perception which shape saving propensities over...

Central banks have sometimes turned their attention to long-term interest rates as a target or as a diagnosis of policy. This paper describes two historical episodes when this happened - the US in 1942-51 and the UK in the 1960s - and uses a model of inflation dynamics to evaluate monetary...

Using a quasi-natural experiment, this study examines the effects of margin trading and short selling on bond yield spread in China. It finds that both margin trading and short selling can reduce bond yield spread. Additionally, it finds that margin trading lowers firms' debt ratios and...

We assess the ability of yield curve factors to predict risk premia in short-term interest rates and exchange rates across a large sample of major advanced economies. We find that the same tick-shaped linear combination of (relative) bond yields predicts risk premia in both short-term interest...

This study analyses how liquidity risk affects bonds' yield spreads after controlling for credit risk, bond-specific characteristics and macroeconomic variables. Using two liquidity estimates, LOT liquidity and the bid-ask spread, we find that, in particular, the LOT liquidity measure has...