Structural Shocks and the Comovements between Output and Interest Rates (Forth. JEDC)

(pdf, quick view)

(Appendix: pdf, quick view)

Forthcoming JEDC

Stylized facts on output and interest rates in the U.S. have so far proved hard to match with business cycle models. But these findings do not acknowledge that the economy might well be driven by different shocks, and by each in  different ways. I estimate covariances of output, nominal and real interest rate conditional on several shocks.

Conditional on shocks to neutral technology and monetary policy, the results square with standard models. In addition, news about future productivity help to explain the overall anti-cyclical behavior of the real rate. Over the Great Moderation, neutral technology shocks are more dominant in explaining comovements between output and interest rates, and the real rate is in fact pro-cyclical. During the Great Inflation, permanent shocks to inflation account for the anti-cyclical behavior of the real rate and its inverted leading indicator property.




(please click thumbnail for a larger picture of the stylized facts)

Predictability in Financial Markets: What do Survey Expectations Tell Us? (2009, JIMF)

Joint with Philippe Bacchetta and Eric van Wincoop.
Journal of International Money and Finance, 2009, Vol 28 (3), 406 - 426

(Appendix, Slides)

There is widespread evidence of excess return predictability in financial markets. For the foreign exchange market a number of studies have documented that the predictability of excess returns is closely related to the predictability of expectational errors of excess returns. In this paper we investigate the link between the predictability of excess returns and expectational errors in a much broader set of financial markets, using data on survey expectations of market participants in the stock market, the foreign exchange market, the bond market and money markets in various countries. The results are striking. First, in markets where there is significant excess return predictability, expectational errors of excess returns are predictable as well, with the same sign and often even with similar magnitude. This is the case for foreign exchange, stock and bond markets. Second, in the only market where excess returns are generally not predictable, the money market, expectational errors are not predictable either. These findings suggest that an explanation for the predictability of excess returns must be closely linked to an explanation for the predictability of expectational errors.

Three Essays on the Determinants of Output, Inflation and Interest Rates (2007, Gerzensee) 

Ph.D. Thesis. University of Lausanne, 18 October 2007 (Diplome, Dissertation Committee)

Published by Study Center Gerzensee