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15
Forecasting output and inflation: The role of asset prices
 Journal of Economic Literature
, 2003
"... Because asset prices are forwardlooking, they constitute a class of potentially useful predictors of inflation and output growth. The premise that interest rates and asset ..."
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Cited by 234 (0 self)
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Because asset prices are forwardlooking, they constitute a class of potentially useful predictors of inflation and output growth. The premise that interest rates and asset
Empirical pricing kernels
, 2001
"... This paper investigates the empirical characteristics of investor risk aversion over equity return states by estimating a timevarying pricing kernel, which we call the empirical pricing kernel (EPK). We estimate the EPK on a monthly basis from 1991 to 1995, using S&P 500 index option data and a ..."
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Cited by 141 (6 self)
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This paper investigates the empirical characteristics of investor risk aversion over equity return states by estimating a timevarying pricing kernel, which we call the empirical pricing kernel (EPK). We estimate the EPK on a monthly basis from 1991 to 1995, using S&P 500 index option data and a stochastic volatility model for the S&P 500 return process. We find that the EPK exhibits countercyclical risk aversion over S&P 500 return states. We also find that hedging performance is significantly improved when we use hedge ratios based the EPK rather than a timeinvariant pricing kernel.
Testing for asymmetry in the link between the yield spread and output
 in the G7 countries, Journal of International Money and Finance 19
, 2000
"... The dierence in yields between longterm and shortterm securities has been used both as a business cycle leading indicator and as an indicator of the current impact of monetary policy. This paper tests for an asymmetry, in the form of a threshold eect, such that the impact of the yield spread on ou ..."
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Cited by 19 (2 self)
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The dierence in yields between longterm and shortterm securities has been used both as a business cycle leading indicator and as an indicator of the current impact of monetary policy. This paper tests for an asymmetry, in the form of a threshold eect, such that the impact of the yield spread on output is greater on one side of the threshold than the other. The test allows for an unknown threshold, and the asymptotic distribution of the resulting statistic is obtained by the method of Hansen (1996). We test using data from each of the G7 countries, and nd that, while the yield spread does generally show a signicant link with output, only in the U.S. and Canada is there strong evidence of an asymmetry of this type. The evidence of asymmetry that we nd suggests a high value of the threshold in both the U.S. and Canada. JEL Classication number: E52
Predicting Recessions with Interest Rate Spreads: A Multicountry RegimeSwitching Analysis
, 1999
"... This study uses Markovswitching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a twostate regimeswitching process. Moreover, our ..."
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Cited by 17 (0 self)
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This study uses Markovswitching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a twostate regimeswitching process. Moreover, our simple univariate model turns out to be a filter that transforms accurately term spread changes into turning point predictions. The term structure is confirmed to be a reliable recession indicator. However, the results of probit estimations show that the markovswitching filter does not significantly improve the forecasting ability of the spread.
The term spread as a cyclical indicator: a forecasting evaluation
 Applied Financial Economics
, 2001
"... This paper questions whether the spread between long and shortterm interests rates is a good cyclical indicator of US economic activity. Probit regressions using the term spread as an independent variable are used to forecast the probability of a recession and the forecasts are evaluated. Using alt ..."
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Cited by 3 (0 self)
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This paper questions whether the spread between long and shortterm interests rates is a good cyclical indicator of US economic activity. Probit regressions using the term spread as an independent variable are used to forecast the probability of a recession and the forecasts are evaluated. Using alternative probability thresholds, the turns that were predicted, their timing and the number of recessions that were not forecast were identi ® ed and the tradeoŒbetween the number of missed and false predictions is examined. A quantitative measure of the forecast errors is also used to compare the accuracy of probit forecasts with those of two naive standards. Finally, the term spread is evaluated purely as an indicator. It is concluded that this series, by itself, is not a reliable predictor of economic activity. Recently the Conference Board has taken over the calculation and publication of the Index of Leading Series for the United States. An interest rate spread, measured as the diŒerence between the rates of the 90day Tbill and the
A comparison of univariate stochastic volatility models for the U.S. short rate using EMM
, 2006
"... In this paper, the efficient method of moments (EMM) estimation using a seminonparametric (SNP) auxiliary model is employed to determine the best fitting model for the volatility dynamics of the U.S. weekly threemonth interest rate. A variety of volatility models are considered, including onefacto ..."
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Cited by 1 (1 self)
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In this paper, the efficient method of moments (EMM) estimation using a seminonparametric (SNP) auxiliary model is employed to determine the best fitting model for the volatility dynamics of the U.S. weekly threemonth interest rate. A variety of volatility models are considered, including onefactor diffusion models, twofactor and threefactor stochastic volatility (SV) models, nonGaussian diffusion models with Stable distributed errors, and a variety of Markov regime switching (RS) models. The advantage of using EMM estimation is that all of the proposed structural models can be evaluated with respect to a common auxiliary model. We find that a continuoustime twofactor SV model, a continuoustime threefactor SV model, and a discretetime RSinvolatility model with level effect can well explain the salient features of the short rate as summarized by the auxiliary model. We also show that either an SV model with a level effect or a RS model with a level effect, but not both, is needed for explaining the data. Our EMM estimates of the level effect are much lower than unity, but around 1/2 after incorporating the SV effect or the RS effect. KEYWORDS: U.S. short rate; stochastic volatility; Markov regime switching; EMM; model selection.
Structural Breaks and NonLinearities for Predicting the Probability of US Recessions using the Spread
, 2002
"... This paper proposes a structural break threshold model (SBT) to the dynamic relationship between US output growth and the spread between long and shortterm interest rates. This model is able to account for nonlinearities, parameter changes and the reduction of the variability of output growth. T ..."
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This paper proposes a structural break threshold model (SBT) to the dynamic relationship between US output growth and the spread between long and shortterm interest rates. This model is able to account for nonlinearities, parameter changes and the reduction of the variability of output growth. The SBT model gives better insample predictions of the probability of US recessions during 19551999 than models with only nonlinearity or structural breaks. The presence of a structural break affects the timing and the size of the predictions of the probability of recession for 2001. Key words: predictions of event probabilities, threshold models, structural breaks, recessions; 1
AND ECONOMIC DOWNTURNS
, 2004
"... Except where reference is made to the work of others, the work described in this dissertation is my own or was done in collaboration with my advisory committee. This dissertation does not include proprietary or classified information. ___________________________________ ..."
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Except where reference is made to the work of others, the work described in this dissertation is my own or was done in collaboration with my advisory committee. This dissertation does not include proprietary or classified information. ___________________________________
Structural Break Threshold VARs for Predicting US Recessions using the Spread
, 2004
"... This paper proposes a model to predict recessions that accounts for nonlinearity and a structural break when the spread between long and shortterm interest rates is the leading indicator. Estimation and model selection procedures allow to estimate and to identify timevarying nonlinearity in a VA ..."
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This paper proposes a model to predict recessions that accounts for nonlinearity and a structural break when the spread between long and shortterm interest rates is the leading indicator. Estimation and model selection procedures allow to estimate and to identify timevarying nonlinearity in a VAR. The structural break threshold VAR (SBTVAR) predicts better the timing of recessions than models with constant threshold or with only a break. Using realtime data, the SBTVAR with spread as leading indicator is able to anticipate correctly the timing of the 2001 recession. Key words: structural breaks; thresholds; event forecast; recession; realtime data; asymptotic bounds.
John Campbell for sharing his dividend yield data. Helpful comments were provided by
, 2000
"... Conference on Asset Markets and Monetary Policy. We thank JeanPhilippe Laforte for ..."
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Conference on Asset Markets and Monetary Policy. We thank JeanPhilippe Laforte for