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A list of all the posts and pages found on the site. For you robots out there is an XML version available for digesting as well.
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Thoughts on the economics of COVID-19–Part 2
Mike Tubbs and I have written our thoughts on recent Fed actions as well as bail outs. We discuss negative interest rates, unconventional monetary policy, joint Treasury/Fed actions, and corporate bailouts. You can get the pdf here.
Thoughts on the economics of COVID-19
If you are like me, you have probably found it difficult to focus on anything besides the ongoing pandemic. I started writing out my thoughts on the economic response to the virus to try to productively point my distraction towards something. I figured I may as well share it with the world. Note that I have been working on this post over the course of the last week, so aspects of it are already outdated. You can get the pdf here.
Is there an on the run premium in TIPS?
This paper analyzes on-the-run securities in the TIPS market by comparing pairs of these bonds with identical maturities, but separate vintages. We find a small, and positive premium. You can read the working paper here.
Bond Flows and Liquidity: Do Foreigners Matter?
We study the effects of changes in the foreign-held share of Mexican sovereign bonds on their liquidity premiums. We find that recent increases in foreign holdings of these securities have played a significant role in driving up their liquidity premiums. The working paper is available here.
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publications
Is There an On-the-Run Premium in TIPS?
In the U.S. Treasury market, the most recently issued, or so-called “on-the-run,” security typically trades at a price above those of more seasoned but otherwise comparable securities. This difference is known as the on-the-run premium. In this paper, yield spreads between pairs of Treasury Inflation-Protected Securities (TIPS) with both matching and nearly-matching maturities but of separate vintages are analyzed. Adjusting for differences in conventional liquidity premiums, values of embedded deflation options, and coupon rates, the results show a small, insignificant premium on recently issued TIPS, which leads us to conclude that there is no on-the-run premium in the TIPS market.
Recommended citation: Christensen, Jens H. E., Jose A. Lopez, Patrick Shultz. 2020. "Is there an On-The-Run Premium in TIPS?." The Quarterly Journal of Finance https://www.frbsf.org/economic-research/files/wp2017-10.pdf
Mexico_debt
title: “Bond Flows and Liquidity: Do Foreigners Matter?” collection: publications permalink: /publication/2020-03-20-mexico_debt date: 2019-12-15 #venue: ‘Journal 1’ paperurl: ‘https://doi.org/10.1016/j.jimonfin.2021.102397’ citation: ‘Christensen, Jens H. E., Eric Fischer, Patrick Shultz. 2021. "Bond Flows and Liquidity: Do Foreigners Matter?" Journal of International Money and Finance ’
Accounting for Low Long-term Interest Rates: Evidence from Canada
In recent decades, long-term interest rates around the world have fallen to historic lows. We examine the source of this decline using a dynamic term structure model of Canadian nominal and real yields with adjustments for term, liquidity, and inflation risk premiums. Canada provides a novel perspective on this issue because of its established indexed debt market, negligible distortions from monetary quantitative easing or the zero lower bound, and absence of sovereign credit risk. We find that since 2000, the steady-state real interest rate has fallen by more than 2 percentage points, long-term inflation expectations have edged down, and real bond and inflation risk premiums have varied over time but shown little longer-run trend. Therefore, the drop in the equilibrium real rate appears largely to account for the lower new normal in interest rates.
Recommended citation: Christensen, Jens H. E., Glenn D. Rudebusch, Patrick Shultz. 2021. "Accounting for Low Long-term Interest Rates: Evidence from Canada." Federal Reserve Bank of San Francisco Working Paper https://www.frbsf.org/economic-research/wp-content/uploads/sites/4/wp2020-35.pdf
Can Monetary Policy Create Fiscal Capacity?
Governments around the world have gone on a massive fiscal expansion in response to the Covid crisis, increasing government debt to levels not seen in 75 years. How will this debt be repaid? What role do conventional and unconventional monetary policy play? We investigate debt sustainability in a New Keynesian model with an intermediary sector, realistic fiscal and monetary policy, endogenous convenience yields, and substantial risk premia. When conventional monetary policy is constrained by the ZLB during an economic crisis, increased government spending and lower tax revenue lead to a large rise in government debt and raise the risk of future tax increases. We find that quantitative easing (QE), forward guidance, and an expansion in government discretionary spending all contribute to lowering debt/GDP ratio and reducing this fiscal risk. A transitory QE policy deployed during a crisis stimulates aggregate demand.
Recommended citation: Elenev, Vadim., Tim Landvoigt, Patrick J. Shultz, Stijn Van Nieuwerburgh. 2021. "Can Monetary Policy Create Fiscal Capacity." Working paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3901593