A Bayesian panel stochastic volatility measure of financial stability

We propose to model financial stability, opting for an alternative bank profit function whose volatility is measured within a framework of panel stochastic volatility. Within this model financial stability and volatility are latent variables. To observe financial stability and volatility we employ Bayesian inference procedures organized around Sequential Monte Carlo (SMC) technique and particle filtering. We do so in a single stage that controls also for non-linearities, whilst we also allow for some key bank and country specific variables to impact upon financial stability and volatility. Thus, we provide a new measure of financial stability by country, over time and also at a global level. In an empirical application, we derive financial stability indexes for a plethora of countries, as well as the global financial stability index that acts an early warning index. Our results suggest that the financial cycle is subject to non-linearities. We argue that the global financial system should closely monitor large, systemic, banks as key to support financial stability

An empirical analysis of the German long-term interest rate

The short run and long run influences of the main determinants of the German long-term interest rate are estimated using quarterly data for the period 1982-2001. A major reason for the focus on the German interest rate is that this rate, and hence its determinants, will be dominant in explaining the developments of the long-term Euro-rate in the international capital market. The specification of the interest rate equation encompasses various theories on interest rate formation. Four of the analysed interest rate theories partially explain interest rate movement, and therefore together form an encompassing model in which the four theories are incorporated. The short-term German interest rate, the US and Japanese bond rates and the government balance appear to be the most prominent determinants of the German (and hence Euro) rate, but also the business cycle and the oil price have explanatory power of this interest rate.

Testing the Taylor Model Predictability for Exchange Rates in Latin America

Exchange rate, Taylor rule model, Monetary model, Unit root, Cointegration, Forecasting performance, F31, F37, F41, F47,