In this book, Andrew Harvey sets out to provide a unified and comprehensive theory of structural time series models. Unlike the traditional ARIMA models, structural time series models consist explicitly of unobserved components, such as trends and seasonals, which have a direct interpretation. As a result the model selection methodology associated with structural models is much closer to econometric methodology. The link with econometrics is made even closer by the natural way in which the models can be extended to include explanatory variables and to cope with multivariate time series. From the technical point of view, state space models and the Kalman filter play a key role in the statistical treatment of structural time series models. The book includes a detailed treatment of the Kalman filter. This technique was originally developed in control engineering, but is becoming increasingly important in fields such as economics and operations research. This book is concerned primarily with modelling economic and social time series, and with addressing the special problems which the treatment of such series poses. The properties of the models and the methodological techniques used to select them are illustrated with various applications. These range from the modellling of trends and cycles in US macroeconomic time series to to an evaluation of the effects of seat belt legislation in the UK.

Forecasting, Structural Time Series Models and the Kalman Filter

This paper analyzes the impact of unanticipated changes in the Federal funds target on equity prices, with the aim of both estimating the size of the typical reaction, and understanding the reasons for the market’s response. On average over the May 1989 to December 2001 sample, a “typical” unanticipated 25 basis point rate cut has been associated with a 1.3 percent increase in the S&P 500 composite index. The estimated response varies considerably across industries, with the greatest sensitivity observed in cyclical industries like construction, and the smallest in mining and utilities. Very little of the market’s reaction can be attributed to policy’s effects on the real rate of interest or future dividends, however. Instead, most of the response of the current excess return on equities can be traced to policy’s impact on expected future excess returns. JEL codes: E44, G12.

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What Explains the Stock Market's Reaction to Federal Reserve Policy?

Enclosed is a copy of the Board of Governors’ Semiannual Agenda of Regulations for the period August 1, 1980 through February 1, 1981. The Semiannual Agenda provides you with information on those regulatory matters that the Board now has under consideration or anticipates considering over the next six months, and is divided into three parts: (1) regulatory matters that the Board had considered during the previous six months on which final action has been taken; (2) regulatory matters that have been proposed for public comment and that require further Board consideration; and (3) regulatory matters that the Board may consider over the next six months.

Federal Reserve Bank of New Yorkの制定せる財務諸表様式について

We evaluate the effect of the Federal Reserve's purchase of long-term Treasuries and other long-term bonds (QE1 in 2008-09 and QE2 in 2010-11) on interest rates. Using an event-study methodology, we reach two main conclusions. First, it is inappropriate to focus only on Treasury rates as a policy target, because quantitative easing works through several channels that affect particular assets differently. We find evidence for a signaling channel, a unique demand for long-term safe assets, and an inflation channel for both QE1 and QE2, and a mortgage-backed securities (MBS) prepayment channel and a corporate bond default risk channel for QE1 only. Second, effects on particular assets depend critically on which assets are purchased. The event study suggests that MBS purchases in QE1 were crucial for lowering MBS yields as well as corporate credit risk and thus corporate yields for QE1, and Treasuries-only purchases in QE2 had a disproportionate effect on Treasuries and agency bonds relative to MBSs and corporate bonds, with yields on the latter falling primarily through the market's anticipation of lower future federal funds rates.

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The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy

This paper employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model oers an excellent description of the data and can be used to summarize the macroeconomic eects of unconventional monetary policy at the zero lower bound. Our estimates imply that the eorts by the Federal Reserve to stimulate the economy since 2009 succeeded in making the unemployment rate in May 2013 0.23% lower than it otherwise would have been.

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Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound

https://www.federalreserve.gov/pubs/feds/2012/201244/201244pap.pdf

Flow and stock effects of large-scale treasury purchases: evidence on the importance of local supply

Using a panel of daily CUSIP-level data, we study the effects of the Federal Reserve’s program to purchase $300 billion of U.S. Treasury coupon securities announced and implemented during 2009. This program represented an unprecedented intervention in the Treasury market and thus allows us to shed light on the price elasticities and substitutability of Treasuries, preferred-habitat theories of the term structure, and the ability of large-scale asset purchases to reduce overall yields and improve market functioning. We find that, except for very long maturities, purchase operations caused an average decline in yields in the sector purchased of 3.5 basis points on the days when they occurred (the “flow effect” of the program). In addition, the program as a whole resulted in a persistent downward shift in the yield curve of as much as 50 basis points (the “stock effect”), with the largest impact on zero-coupon yields around the 5-year sector. The coefficient patterns generally support a view of segmentation or imperfect substitution within the Treasury market at the time of the program announcement and implementation.

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Flow and stock effects of large-scale treasury purchases

We provide empirical estimates of the effect of large-scale asset purchases (LSAPs) on longer term US Treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred-habitat literature and the duration channel associated with interest-rate risk. We also clarify LSAPs’ role in the broader context of historical monetary policy strategy. Results indicate that LSAP-style operations mainly impact longer term rates via the nominal term premium; within that premium, the response is predominantly embodied in the real term premium. The scarcity and duration channels both seem to be of considerable importance.

The Federal Reserve's Large‐scale Asset Purchase Programmes: Rationale and Effects*

TIPS breakeven inflation rate, defined as the difference between nominal and TIPS yields of comparable maturities, is potentially useful as a real-time measure of market inflation expectations. In this paper, we provide evidence that a fairly large TIPS liquidity premium existed until recently, using a multifactor no-arbitrage term structure model estimated with nominal and TIPS yields, inflation and survey forecasts of interest rates. Ignoring the TIPS liquidity premiums leads to counterintuitive implications for inflation expectations and inflation risk premium, and produces large pricing errors for TIPS. In contrast, models incorporating a TIPS liquidity factor generate much better fit for these variables and reveal a TIPS liquidity premium that was until recently quite large (~1%) but has come down in recent years, consistent with the common perception that TIPS market grew and liquidity conditions improved. Our results indicate that after taking proper account of the liquidity conditions in the TIPS market, the movement in TIPS breakeven inflation rate can provide useful information for identifying real yields, expected inflation and inflation risk premium.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2422861_code170891.pdf?abstractid=2422861

Tips from TIPS : The Informational Content of Treasury Inflation-Protected Security Prices

We provide empirical estimates of the effect of large-scale asset purchase (LSAP)-style operations on longer-term U.S. Treasury yields within a framework that nests the alternative theoretical perspectives on LSAPs. As the principal channels through which LSAPs migh tmatter for longer-term interest rates, we concentrate on (i) the scarcity (available local supply) channel associated with the traditional preferred habitat literature, and (ii) the duration channel associated with the general notion of interest rate risk. Wealso clarify LSAPs role in the broader context of monetary policy strategy, bringing out the connections between purchases of longer-term assets and historical Federal Reserve policy approaches. Our results indicate that the impact of LSAP-style operations on longer-term interest rates is mainly felt on the nominal term-premium component; moreover, within the nominal term premium, it is the real term premium that experiences the greatest response. The estimates suggest that the scarcity and duration channels have both been of considerable importance for the transmission of purchases to longer-term Treasury yields. Finally, by isolating the degree to which scarcity and duration impinge on term premiums, our estimates indicate the direction in which macroeconomic models should develop in order to encompass the transmission channels associated with LSAPs.

https://www.federalreserve.gov/pubs/feds/2012/201285/201285pap.pdf

Stefania D'Amico

Papers

Flow and stock effects of large-scale treasury purchases: evidence on the importance of local supply

Flow and stock effects of large-scale treasury purchases

The Federal Reserve's Large‐scale Asset Purchase Programmes: Rationale and Effects*

Tips from TIPS : The Informational Content of Treasury Inflation-Protected Security Prices

The Federal Reserve's Large-Scale Asset Purchase Programs : Rationale and Effects