Macro-Finance

2013 ◽  
Author(s):  
Francis X. Diebold ◽  
Glenn D. Rudebusch
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Factor Structure ◽  
Financial Market ◽  
Yield Curve ◽  
Inflation Expectations ◽  
Research Directions ◽  
Market Participants ◽  
Macro Finance

This chapter discusses a variety of arbitrage-free Nelson–Siegel (AFNS) macro-finance yield curve approaches. The AFNS factor structure provides a very useful framework for examining various macro-finance questions given the computational difficulties in extending finance-only affine arbitrage-free models. One application of the AFNS model, in Christensen et al. (2010c), produces estimates of the inflation expectations of financial market participants from prices of nominal and real bonds. A second macro-finance application of the AFNS model, provided in Christensen et al. (2009), investigates the effect of the new central bank liquidity facilities that were instituted during the financial crisis. The chapter concludes with a discussion of evolving research directions.

Part II The Financial Crisis of 2007–2011, 6 Market and Regulatory Failure

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Credit Risk ◽  
Financial Market ◽  
Credit Rating ◽  
Third Party ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Market Participants ◽  
Regulatory Failure

This chapter first discusses the origins of the financial crisis, highlighting practice of ‘packaging and selling’ credit risk by financial market participants that led up to the crisis. It argues that although, in retrospect, many aspects of that practice look very bad indeed, the idea that banks might originate a credit exposure and then transfer the credit risk attached to it to a third party was, before the financial crisis, considered to be part and parcel of sound risk management. The discussion then turns to credit-rating agencies. Analysis of the financial crisis and ‘what went wrong’ has shown that rating agencies were too generous with their rating of many of the structured products that contributed to the collapse.

scholarly journals Whose Inflation Expectations Best Predict Inflation?

2021 ◽  
pp. 1-7
Author(s):  
Randal J. Verbrugge ◽  
Saeed Zaman
Keyword(s):  
Financial Market ◽  
Forecasting Model ◽  
Inflation Expectations ◽  
Market Participants ◽  
Inflation Forecasting ◽  
Predictive Relationship

We examine the predictive relationship between various measures of inflation expectations and future inflation. We find that the expectations of professional economists and of businesses have tended to provide more accurate predictions of future inflation than the expectations of households and of financial market participants. However, the forecasts coming from a relatively simple and popular benchmark inflation forecasting model have historically been roughly as accurate as the expectations of businesses and professional economists.

Strategy in Action

2021 ◽  
pp. 109-164
Author(s):  
Massimo Rostagno ◽  
Carlo Altavilla ◽  
Giacomo Carboni ◽  
Wolfgang Lemke ◽  
Roberto Motto ◽  
...  
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Euro Area ◽  
European Central Bank ◽  
Policy Framework ◽  
Inflation Expectations ◽  
Demand Shocks ◽  
European Central ◽  
Supply Shocks

The policy framework of the European Central Bank (ECB) attracted both bouquets and brickbats in the pre-crisis era. This chapter aims to assess those arguments with hindsight: was policy successful in delivering the objective or was it instead ‘inattentive’, as some critics at the time claimed? We argue that the euro area economy faced a series of inflationary supply shocks and the policy framework was helpful in those conditions. The perceived asymmetry of the inflation objective—with a hard ‘ceiling’ at 2%—allowed automatic adjustments in underlying conditions, including inflation expectations, to do a large part of the stabilization job. However, we show that this self-stabilizing mechanism also admits a second regime: if the economy enters a situation where negative demand shocks dominate, the ‘ceiling’ ceases to bind and act as a stabilizer, leading inflation to drift downwards. We contend that the ECB may have entered such a regime after the financial crisis.

scholarly journals Assessment of the Clarity of Bank of Russia Monetary Policy Communication by Neural Network Approach

2021 ◽  
Vol 80 (3) ◽  
pp. 3-33
Author(s):  
Alina Evstigneeva ◽  
◽  
Mark Sidorovskiy ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Inflation Expectations ◽  
Plain Language ◽  
Neural Network Approach ◽  
Market Participants ◽  
Automated Evaluation ◽  
Policy Communication

Inflation targeting requires clear and transparent central bank’s communication. Analysts and market participants understand it as a broad list of information disclosed by the central bank. The general public understands it rather as the ability of a central bank to speak and explain its decisions in a plain language. In recent decades, monetary authorities in many countries have made significant progress in this direction. However, there has been no research on the quality of communication for the Bank of Russia. This paper aims to create a tool for automated evaluation of the readability of the Bank of Russia’s monetary policy communication, taking into account the available experience of linguistic and textual analysis, including machine learning methods, as well as to provide recommendations for its improvement. This can contribute to improving the effectiveness of the Bank of Russia communication on monetary policy, which is vital for its credibility, anchoring inflation expectations, and predictability of the regulator’s decisions.

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