Frequency-domain analysis of debt service in a macro-finance model for the euro area.

This paper illustrates how a parsimonious macro-finance model can be exploited to investigate the frequency-domain properties of debt service implied by various financing srategies. This orginal approach is valuable to public debt managers seeking to assess the fiscal-hedging properties of the financing strategies they implement. The model, inspired by Rudebusch and Wu (2008), is estimated on euro-area data over the period 1999-2009. At business-cycle frequencies, the variance of interest payments is lower when nominal long-term bonds are issued. From a budget-smoothing perspective, debt service variability plays a major role, but pro- or counter-cyclicality of debt service also matters. In this respect, the results suggest that while interest payments associated with medium- to long-term nominal bonds are negatively correlated with real activity, those associated with inflation-linked bonds and short-term nominal bonds tend to be pro-cyclical.Macro-finance model , spectral analysis , term-structure of interest rates , public debt management

A Time-Varying Natural Rate for the Euro Area

In this article we estimate a time-varying " natural " rate of interest (TVNRI) for a synthetic euro area over the period 1979Q1-2002Q4 using a small backward-looking macroeconomic model, broadly following a methodology developed by Laubach and Williams (2003) for the United States. The Kalman filter simultaneously estimates two unobservable variables: the output gap and the natural rate of interest. The underlying state-space model incorporates an aggregate demand equation and a Phillips curve. Consistent with the theoretical intuition, our identifying assumptions include a close relationship between the TVNRI and the low-frequency fluctuations of potential output growth. The resulting interest rate gap, that is, the difference between the real rate of interest and its estimated natural level, provides us with a valuable tool for assessing the monetary policy stance in EU12 over the last two decades. While our TVNRI estimate seems quite robust to changes in model specifications, the relatively high uncertainty surrounding the estimate hampers its direct integration into the policy-making process.Natural rate of interest ; Interest rate gap ; Monetary policy ; Kalman filter ; Output gap.

Does uncertainty make a time-varying natural rate of interest irrelevant for the conduct of monetary policy?

We compute optimized monetary policy rules for the ECB when the euro area economy is described by a small empirical macroeconomic model with a time-varying natural interest rate which is positively correlated with fluctuations in trend output growth. We investigate the consequences of both measurement uncertainty with respect to unobservable variables and uncertainty about key model parameters. An optimized Taylor rule with time-varying neutral rate appears to perform well compared to the unconstrained optimal policy, and better than other simple rules found in the literature, even when it is penalized by taking into account both types of uncertainty.Monetary policy rules ; Natural rate of interest ; Uncertainty.

Dissipative collapse of the adiabatic piston

An adiabatic piston, separating two granular gases prepared in the same macroscopic state, is found to eventually collapse to one of the sides. This new instability is explained by a simple macroscopic theory which is furthermore in qualitative agreement with hard disk molecular dynamics.Comment: 7 pages, 5 figure

Credit and liquidity risks in euro area sovereign yield curves

In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in euro-area yields and spreads. The regime-switching feature of the model turns out to be particularly relevant to capture the rise in volatility experienced by fixed-income markets over the last years. In our reduced-form set up, each country is characterized by a hazard rate, specified as some linear combinations of the factors and regimes. The hazard rates incorporate both liquidity and credit components, that we aim at disentangling. The estimation suggests that a substantial share of the changes in euro-area yield differentials is liquidity-driven. Our approach is consistent with the fact that sovereign default risk is not diversifiable, which gives rise to specific risk premia that are incorporated in spreads. Once liquidity-pricing effects and risk premia are filtered out of the spreads, we obtain estimates of the actual –or real-world– default probabilities. The latter turn out to be significantly lower than their risk-neutral counterparts.default risk, liquidity risk, term structure of interest rates, regime-switching, euro-area spreads.

Asset-price boom-bust cycles and credit: what is the scope of macro-prudential regulation?

Over the recent months, several initiatives have taken place to develop macro-prudential regulation in order to prevent systemic risk and the built-up of financial imbalances. Crucial to the success of such policy is the ability of the macro-prudential authority to identify in due time such imbalances, generally featured by asset-price boom-bust cycles. In this paper, we investigate the possibility of detecting asset-price booms according to alternative identification strategies and assess their robustness. We infer the probability that an asset-price boom turns into an asset-price bust. In addition, we try to disentangle costless or low-cost from costly asset-price booms. We find some evidence that house price booms are more likely to turn into costly recession than stock price booms. Resorting both to a non-parametric approach and a discrete-choice (logit) model, we analyze the ability of a set of indicators to robustly explain costly asset-price booms. According to our results, real long-term interest rates, total investment, real credit and real stock prices tend to increase the probability of a costly housing-price boom, whereas real GDP and house prices tend to increase the probability of a costly stock-price boom. Regarding the latter, credit variables tend to play a less convincing role. From this perspective, we specify the scope of macro-prudential regulation as a set of tools aiming at avoiding "costly" asset-price booms. In doing so, we try both to make the case for state-contingent macro-prudential regulations and to set out clear delineation between monetary and financial stability objectives.Early Warning Indicators , Discrete-Choice Model , Asset Price Booms and Busts , Macro-prudential Regulation , Leaning Against the Wind Policies.

Doppler lidar results from the San Gorgonio Pass experiments

During FY-84, the Doppler Lidar data from the San Gorgonio Pass experiments were analyzed, evaluated, and interpreted with regard to signal strength, signal width, magnitude and direction of velocity component and a goodness parameter associated with the expected noise level of the signal. From these parameters, a screening criteria was developed to eliminate questionable data. For the most part analysis supports the validity of Doppler Lidar data obtained at San Gorgonio Pass with respect to the mean velocity magnitude and direction. The question as to whether the Doppler width could be interpreted as a measure of the variance of the turbulence within the Doppler Lidar System (DLS) focal volume was not resolved. The stochastic nature of the Doppler broadening from finite residence time of the particles in the beam as well as other Doppler broadening phenomenon tend to mask the Doppler spread associated with small scale turbulence. Future tests with longer pulses may assist in better understanding

Analysis of the NASA/MSFC Airborne Doppler Lidar results from San Gorgonio Pass, California

Two days during July of 1981 the NASA/MSFC Airborne Doppler Lidar System (ADLS) was flown aboard the NASA/AMES Convair 990 on the east side of San Gorgonio Pass California, near Palm Springs, to measure and investigate the accelerated atmospheric wind field discharging from the pass. The vertical and horizontal extent of the fast moving atmospheric flow discharging from the San Gorgonio Pass were examined. Conventional ground measurements were also taken during the tests to assist in validating the ADLS results. This particular region is recognized as a high wind resource region and, as such, a knowledge of the horizontal and vertical extent of this flow was of interest for wind energy applications. The statistics of the atmospheric flow field itself as it discharges from the pass and then spreads out over the desert were also of scientific interests. This data provided the first spatial data for ensemble averaging of spatial correlations to compute longitudinal and lateral integral length scales in the longitudinal and lateral directions for both components

Analysis of the NASA/MSFC airborne Doppler lidar results from San Gorgonio Pass, California

The NASA/MSFC Airborne Doppler Lidar System was flown in July 1981 aboard the NASA/Ames Convair 990 on the east side of San Gorgonio Pass California, near Palm Springs, to measure and investigate the accelerated atmospheric wind field discharging from the pass. At this region, the maritime layer from the west coast accelerates through the pass and spreads out over the valley floor on the east side of the pass. The experiment was selected in order to study accelerated flow in and at the exit of the canyon. Ground truth wind data taken concurrently with the flight data were available from approximately 12 meteorological towers and 3 tala kites for limited comparison purposes. The experiment provided the first spatial data for ensemble averaging of spatial correlations to compute lateral and longitudinal length scales in the lateral and longitudinal directions for both components, and information on atmospheric flow in this region of interest from wind energy resource considerations