scholarly journals Liquidity-Adjusted Benchmark Yield Curves: A Look at Trading Concentration and Information

2007 ◽  
Vol 10 (04) ◽  
pp. 491-518 ◽  
Author(s):  
William T. Lin ◽  
David S. Sun
Keyword(s):  
Term Structure ◽  
Yield Curve ◽  
Information Discovery ◽  
Affine Term Structure ◽  
Term Structure Model ◽  
Long Run ◽  
Fitting Method ◽  
Bond Issues ◽  
Short Run

Estimation of benchmark yield curve in developing markets is often influenced by liquidity concentration. Based on an affine term structure model, we develop a long run liquidity weighted fitting method to address the trading concentration phenomenon arising from horizon-induced clientele equilibrium as well as information discovery. Specifically, we employ arguments from models of liquidity concentration and benchmark security information. After examining time series behavior of price errors against our fitted model, we find results consistent with both the horizon and information hypotheses. Our evidence indicates that trading liquidity carries information effect in the long run, which cannot be fully captured in the short run. Trading liquidity plays a key role in long run term structure fitting. Markets for liquid benchmark government bond issues collectively form a long term equilibrium. Compared with previous studies, our results provide a robust and realistic characterization of the spot rate term structure and related price forecasting over time, which in turn help portfolio investment of fixed income and long run pricing of financial instruments.

Estimating and Forecasting the Term Structure of Korea Markets Using the Nelson-Siegel Model

2004 ◽  
Vol 12 (2) ◽  
pp. 101-126
Author(s):  
Joon Haeng Lee
Keyword(s):  
Term Structure ◽  
Yield Curve ◽  
Principal Component ◽  
Component Model ◽  
Structure Model ◽  
Sample Period ◽  
Term Structure Model ◽  
Long Run ◽  
Out Of Sample ◽  
Principal Component Model

This paper estimates and forecasts yield curve of korea bond market using a three factor term structure model based on the Nelson-Siegel model. The Nelson-Siegel model is in-terpreted as a model of level, slope and curvature and has the flexibility required to match the changing shape of the yield curve. To estimate this model, we use the two-step estima-tion procedure as in Diebold and Li. Estimation results show our model is Quite flexible and gives a very good fit to data. To see the forecasting ability of our model, we compare the RMSEs (root mean square error) of our model to random walk (RW) model and principal component model for out-of sample period as well as in-sample period. we find that our model has better forecasting performances over principal component model but shows slight edge over RW model especially for long run forecasting period. Considering that it is difficult for any model to show better forecasting ability over the RW model in out-of-sample period, results suggest that our model is useful for practitioners to forecast yields curve dynamics.

scholarly journals Impact of Foreign Official Purchases of US Treasuries on the Yield Curve

2020 ◽  
Vol 110 ◽  
pp. 535-540
Author(s):  
Erin L. Wolcott
Keyword(s):  
Term Structure ◽  
Yield Curve ◽  
Structural Vector Autoregression ◽  
Interest Rate Policy ◽  
Affine Term Structure ◽  
Term Structure Model ◽  
Rate Policy ◽  
Foreign Governments ◽  
Affine Term Structure Model ◽  
Structural Vector

Foreign governments went from owning a tenth of publicly available US Treasury notes and bonds in 1985 to over half in 2008. Recently, foreign governments have reduced their positions. I find foreign official purchases have depressed medium-term yields, despite conventional wisdom pointing toward the long end of the yield curve. To examine effects over the entire yield curve, I embed a structural vector autoregression of macroeconomic variables into an affine term structure model. With segments of the yield curve increasingly determined by international financial markets, it may be more difficult for the Federal Reserve to implement its interest rate policy.

scholarly journals What does a term structure model imply about very long-term interest rates?

2021 ◽  
Vol 62 ◽  
pp. 202-219
Author(s):  
Anne G. Balter ◽  
Antoon Pelsser ◽  
Peter C. Schotman
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Structure Model ◽  
Term Structure Model

Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure

2011 ◽  
Vol 46 (5) ◽  
pp. 1259-1294 ◽  
Author(s):  
Sudipto Dasgupta ◽  
Thomas H. Noe ◽  
Zhen Wang
Keyword(s):  
Cash Flow ◽  
Economic Effect ◽  
Balance Sheet ◽  
Cash Flows ◽  
Long Run ◽  
Goods Market ◽  
Short Run ◽  
Debt Market ◽  
Short And Long Term

AbstractThis paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

The Real Effects of Military Spending on Security

2014 ◽  
Vol 20 (3) ◽  
pp. 377-393 ◽  
Author(s):  
Lloyd J. Dumas
Keyword(s):  
Military Spending ◽  
Well Being ◽  
Military Force ◽  
Physical Security ◽  
Dead Weight ◽  
Economic Relationships ◽  
Real Effects ◽  
Long Run ◽  
Short Run

AbstractThe indirect effects of military spending on security are stronger and more important than its direct effects, and its long run impact more telling than its short run impact. In the short run, military spending can be a source of both physical security and economic stimulus. In the long run, it can be counterproductive in terms of physical security and will be a dead weight on the economy. How a society’s productive resources are deployed, as between military spending and more economically productive activities, sets it on a long-term course with powerful implications for the ability of its economy to do what it is supposed to do – provide for the material well-being of the population as a whole. The mechanism by which the extensive and extended diversion of productive economic resources to economically unproductive military spending drags an economy down is analyzed. Furthermore, it is possible to use properly structured international and domestic economic relationships in place of threats or use of military force to increase national and international security, while at the same time enhancing, rather than degrading, economic wellbeing. Three principles for structuring such a “peacekeeping economy” are set forth.

Determinants of Treasury-LIBOR Swap Spreads

2005 ◽  
Vol 08 (04) ◽  
pp. 687-705 ◽  
Author(s):  
D. K. Malhotra ◽  
Vivek Bhargava ◽  
Mukesh Chaudhry
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Default Risk ◽  
Yield Curve ◽  
Short Term ◽  
Long Run ◽  
Interest Rate Volatility ◽  
Short Run ◽  
Using Data ◽  
Swap Spreads

Using data from the Treasury versus London Interbank Offer Swap Rates (LIBOR) for October 1987 to June 1998, this paper examines the determinants of swap spreads in the Treasury-LIBOR interest rate swap market. This study hypothesizes Treasury-LIBOR swap spreads as a function of the Treasury rate of comparable maturity, the slope of the yield curve, the volatility of short-term interest rates, a proxy for default risk, and liquidity in the swap market. The study finds that, in the long-run, swap spreads are negatively related to the yield curve slope and liquidity in the swap market. We also find that swap spreads are positively related to the short-term interest rate volatility. In the short-run, swap market's response to higher default risk seems to be higher spread between the bid and offer rates.

Coördinatie tussen individuen en tussen teams: over het belang van inzicht in sociale dilemma's

2004 ◽  
Vol 17 (3) ◽  
Author(s):  
Marjolein de Best-Waldhober ◽  
Carsten K.W. De Dreu ◽  
Daan van Knippenberg
Keyword(s):  
Term Structure ◽  
Social Dilemmas ◽  
Social Dilemma ◽  
The Other ◽  
Long Run ◽  
Self Interest ◽  
Turn Taking ◽  
Group Negotiation

Coordination between individuals and between teams: the importance of insight in social dilemmas Coordination between individuals and between teams: the importance of insight in social dilemmas Marjolein de Best-Waldhober, Carsten K.W. De Dreu & Daan van Knippenberg, Gedrag & Organisatie, Volume 17, June 2004, nr. 3, pp. 187-203. In the context of a social dilemma, in which turn taking serves collective outcomes and only in the long run self-interest and personal outcomes, we studied long-term coordination, i.e. the alternation of sacrifice to achieve maximum joint outcomes. In particular, we studied the differences between individuals and dyads (two person groups) in coordination situations. Recent studies that compared individual with group negotiation seem to lead to opposite predictions. One paradigm predicts groups will perform better, because they outweigh individuals cognitively. The other paradigm predicts individuals will perform better, because they tend to have less fear and greed than groups. Results from the current study primarily support the first explanation. Dyads were less influenced by the complexity of the situation structure than individuals, because they have a better understanding of the long term structure of the situation.

Does Public Debt Service Expenditure Crowd-Out Economic Growth? Empirical Evidence from an African Developing Country

2019 ◽  
Vol 64 (3) ◽  
pp. 23-38
Author(s):  
Talknice Saungweme ◽  
Nicholas M. Odhiambo
Keyword(s):  
Economic Growth ◽  
Public Debt ◽  
Time Series Data ◽  
Policy Formulation ◽  
Debt Service ◽  
Series Data ◽  
Long Run ◽  
Short Run ◽  
The Impact

Abstract This paper contributes to the ongoing debate on the impact of public debt service on economic growth; and it provides an evidence-based approach to public policy formulation in Zimbabwe. The empirical analysis was performed by applying the autoregressive distributed lag (ARDL) technique to annual time-series data from 1970 to 2017. The study findings reveal that the impact of public debt service on economic growth in Zimbabwe is negative in the short run but positive in the long run. The results are suggestive of the existence of a crowding-out effect of public debt service in Zimbabwe in the short run and a crowding-in effect in the long run. In view of these findings, the government should consider fiscal and financial policies that promote a constant supply of long-term finance, long-term fixed investments, and extension of a government securities maturity structure so as to ensure sustainable short- and long-term public debt service expenditures. The study further recommends the strengthening of non-distortionary revenue mobilisation reforms to reduce market distortions and boost domestic investment.

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