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Term structure modeling, forecasting and implications for monetary policy
thesisposted on 2022-03-28, 11:19 authored by Chamadanai Marknual
This thesis examines the macro-finance-fiscal term structure model to incorporate fiscal instability variables and the term spread to understand the impact of the sovereign debt crisis on the evolution of the yield curve. My findings reveal financial instability increases the term spread associated with the expectation of higher sovereign default risk and consequently signals economic agents to reduce their spending, and thus worsens economic activity. Secondly, I also investigate whether the dynamic factor model with nonparametric factor loadings is more accurate relative to other term structure models by employing the dynamic semi-parametric factor model (DSFM). The empirical results indicate that a better in-sample fit is provided by the dynamic semiparametric factor model. However, the overall forecasting results are not encouraging. The dynamic semiparametric factor model provides accurate results in forecasting a persistent trend while the dynamic Nelson-Siegel model is more suitable to fit more volatile series. Thirdly,I use a Sheen-Trueck-Wang business conditions index for term structure modeling and forecasting. I find the cross-sectional yield provides guidance to anchor the yield in the next period. The prediction performance of the model is enhancedby using the index since it includes information on frequently released or more recent available data. The index is significantly related to the slope factor, which suggests the forward-looking information from the index inuences the adjustmentthe in the yield slope. Lastly, I examine the effectiveness of the US quantitative easing (QE) policy with a Bayesian structural vector auto regressive (B-SVAR)model with sign restrictions. I find the transmission mechanism of the Federal Reserve asset purchase effectively expands output and avert deflation through a compression in the yield spread.
Table of Contents1. Introduction -- 2. Spanish sovereign term structure: implications of the sovereign debt crisis -- 3. Term structure forecasting - a comparison between the dynamic Semiparametric Factor Model and the dynamic Nelson-Siegel Model -- 4. Term structure forecasting with a business conditions index -- 5. The economic impact of quantitative easing on the U.S. economy: a Bayesian structural VAR (B-SVAR) with sign restrictions analysis -- 6. Conclusion.
Notes"June 2015". Bibliography: pages 249-260 "A thesis submitted in partial fulfillment for the degree of Doctor of Philosophy in the Faculty of Business and Economics, Department of Economics".
Awarding InstitutionMacquarie University
Degree TypeThesis PhD
DegreePhD, Macquarie University, Faculty of Business and Economics, Department of Economics
Department, Centre or SchoolDepartment of Economics
Year of Award2015
Principal SupervisorJeffrey Sheen
Additional Supervisor 1Stefan Trück
Additional Supervisor 2Natalia Ponomareva
RightsCopyright Chamadanai Marknual 2015. Copyright disclaimer: http://www.copyright.mq.edu.au/ Copyright disclaimer: http://www.copyright.mq.edu.au
Extent1 online resource( xx, 260 pages ): illustrations (coloured)
Former Identifiersmq:42349 http://hdl.handle.net/1959.14/1052486
Monetary policysovereign debt crisisdynamic semiparametric factor modelunconventional monetary policysign restrictionsBayesian structural vector autoregressive (B-SVAR) modelyield curveDSFMmacro-finance modelMonetary policy -- Mathematical modelsterm structure modelingEconomic forecastingterm spreadEconomic forecasting -- Mathematical models