Search Results
Working Paper
Monetary Policy Uncertainty and Monetary Policy Surprises
Monetary policy uncertainty affects the transmission of monetary policy shocks to longer-term nominal and real yields. For a given monetary policy shock, the reaction of yields is more pronounced when the level of monetary policy uncertainty is low. Primary dealers and other investors adjust their interest rate positions more when monetary policy uncertainty is low than when uncertainty is high. These portfolio adjustments likely explain the larger pass-through of a monetary policy shock to bond yields when uncertainty is low. These findings shed new light on the role that monetary policy ...
Working Paper
Financial Vulnerabilities, Macroeconomic Dynamics, and Monetary Policy
We define a measure to be a financial vulnerability if, in a VAR framework that allows for nonlinearities, an impulse to the measure leads to an economic contraction. We evaluate alternative macrofinancial imbalances as vulnerabilities: nonfinancial sector credit, risk appetite of financial market participants, and the leverage and short-term funding of financial firms. We find that nonfinancial credit is a vulnerability: impulses to the credit-to-GDP gap when it is high leads to a recession. Risk appetite leads to an economic expansion in the near-term, but also higher credit and a recession ...
Working Paper
Unspanned macroeconomic factors in the yield curve
In this paper, we extract common factors from a cross-section of U.S. macro-variables and Treasury zero-coupon yields. We find that two macroeconomic factors have an important predictive content for government bond yields and excess returns. These factors are not spanned by the cross-section of yields and are well proxied by economic growth and real interest rates.
Working Paper
Sowing the Seeds of Financial Imbalances: The Role of Macroeconomic Performance
The seeds of financial imbalances are sown in times of buoyant economic growth. We study the link between macroeconomic performance and financial imbalances, focusing on the experience of the United States since the 1960s. We first follow a narrative approach to review historical episodes of significant financial imbalances and find that the onset of financial disturbances typically occurs when the economy is running hot. We then look for evidence of a statistical link between measures of macroeconomic conditions and financial imbalances. In our in-sample analysis, we find that strong ...
Working Paper
A Nowcasting Model for Canada: Do U.S. Variables Matter?
We propose a dynamic factor model for nowcasting the growth rate of quarterly real{{p}}Canadian gross domestic product. We show that the proposed model produces more accurate nowcasts than those produced by institutional forecasters, like the Bank of Canada, the The Organisation for Economic Co-operation and Development (OECD), and the survey collected by Bloomberg, which reflects the median forecast of market participants. We show that including U.S. data in a nowcasting model for Canada dramatically improves its predictive accuracy, mainly because of the absence of timely production data ...
Working Paper
Nowcasting Turkish GDP and News Decomposition
Real gross domestic product (GDP) data in Turkey are released with a very long delay compared with other economies, between 10 and 13 weeks after the end of the reference quarter. To infer the current state of the economy, policy makers, media, and market practitioners examine data that are more timely, that are released at higher frequencies than the GDP. In this paper, we propose an econometric model that automatically allows us to read through these more current and higher-frequency data and translate them into nowcasts for the Turkish real GDP. Our model outperforms nowcasts produced by ...
Working Paper
Nowcasting Business Cycles: a Bayesian Approach to Dynamic Heterogeneous Factor Models
We develop a framework for measuring and monitoring business cycles in real time. Following a long tradition in macroeconometrics, inference is based on a variety of indicators of economic activity, treated as imperfect measures of an underlying index of business cycle conditions. We extend existing approaches by permitting for heterogenous lead-lag patterns of the various indicators along the business cycles. The framework is well suited for high-frequency monitoring of current economic conditions in real time - nowcasting - since inference can be conducted in presence of mixed frequency ...
Working Paper
Low Frequency Effects of Macroeconomic News on Government Bond Yields
This study analyzes the reaction of the U.S. Treasury bond market to innovations in macroeconomic fundamentals. We identify these innovations with macroeconomic news, defined as differences between the actual releases and their market expectations. We show that macroeconomic news explain about one-third of the low frequency (quarterly) fluctuations of long-term bond yields. When focusing on the high frequency (daily) movements this share decreases to one-tenth. This result is due to the fact that macro news have a persistent effect on the yield curve. Non-fundamental factors, instead, ...
Working Paper
The Information Content of Stress Test Announcements
We exploit institutional features of the U.S. banking stress tests to disentangle different types of information garnered by market participants when the stress test results are released. By examining the reaction of different asset prices, we find evidence that market participants value the stress test announcements not only for the information on possible future capital distributions but also for the signals about bank resilience. These results back the use of stress tests by central banks to inform the broader public about the soundness of the banking system.
Working Paper
Back to the Present: Learning about the Euro Area through a Now-casting Model
We build a model for simultaneously now-casting economic conditions in the euro area and its three largest member countries--Germany, France, and Italy. The model formalizes how market participants and policymakers monitor the euro area by incorporating all market moving indicators in real time. We find that area wide and country-specific data provide informative signals to now-cast the economic conditions in the euro area and member countries. The model provides accurate predictions of economic conditions in real time over a period that covers the past three recessions.