The Yield Curve through Time and Across Maturities

We develop an unobserved component model in which the short-term interest rate is composed of a stochastic trend and a stationary cycle. Using the Nelson-Siegel model of the yield curve as inspiration, we estimate an extremely parsimonious state-space model of interest rates across time and maturity. Our stochastic process generates a three-factor model for the term structure. At the estimated parameters, trend and slope factors matter while the third factor is empirically unimportant. Our baseline model fits the yield curve well. Model generated estimates of uncertainty are positively correlated with estimated term premia. An extension of the model with regime switching identifies a high-variance regime and a low-variance regime, where the high-variance regime occurs rarely after the mid-1980s. The term premium is higher, and more so for yields of short maturities, in the high-variance regime than that in the low-variance regime. The estimation results support our model as a simple and yet reliable framework for modeling the term structure.

A Macro-Finance Approach to Exchange Rate Determination

The nominal exchange rate is both a macroeconomic variable equilibrating international markets and a financial asset that embodies expectations and prices risks associated with cross border currency holdings. Recognizing this, we adopt a joint macro-finance strategy to model the exchange rate. We incorporate into a monetary exchange rate model macroeconomic stabilization through Taylor-rule monetary policy on one hand, and on the other, market expectations and perceived risks embodied in the cross-country yield curves. Using monthly data between 1985 and 2005 for Canada, Japan, the UK and the US, we employ a state-space system to model the relative yield curves between country-pairs using the Nelson and Siegel (1987) latent factors, and combine them with monetary policy targets (output gap and inflation) into a vector autoregression (VAR) for bilateral exchange rate changes. We find strong evidence that both the financial and macro variables are important for explaining exchange rate dynamics and excess currency returns, especially for the yen and the pound rates relative to the dollar. Moreover, by decomposing the yield curves into expected future yields and bond market term premiums, we show that both expectations about future macroeconomic conditions and perceived risks are priced into the currencies. These findings provide support for the view that the nominal exchange rate is determined by both macroeconomic as well as financial forces.

What Does the Yield Curve Tell Us About Exchange Rate Predictability?

This paper uses information contained in the cross-country yield curves to test the asset-pricing approach to exchange rate determination, which models the nominal exchange rate as the discounted present value of its expected future fundamentals. Research on the term structure of interest rates has long argued that the yield curve contains information about future economic activity such as GDP growth and inflation. Bringing this lesson to the international context, we extract the Nelson-Siegel (1987) factors of relative level, slope, and curvature from cross-country yield differences to proxy expected movements in future exchange rate fundamentals. Using monthly data between 1985-2005 for the United Kingdom, Canada, Japan and the US, we show that the yield curve factors indeed can explain and predict bilateral exchange rate movements and excess currency returns one month to two years ahead. Out-of-sample analysis also shows the yield curve factors to outperform a random walk in forecasting short-term exchange rate returns.

Love Thy Neighbor: Income Distribution and Housing Preferences

Do homeowners prefer living in an area with a more equal distribution of income? We answer this question by estimating a semi-parametric hedonic pricing model for about 90,000 housing units transacted in Hong Kong between 2005 and 2006. We first identify a hedonic price function by locally regressing the rental price of the housing unit on its intrinsic and neighborhood characteristics, one of which is the Gini coefficient for household income of the constituency area. We then combine the estimates with a log utility function to obtain the heterogeneous preference parameters. Finally, we estimate the joint distribution of the preference parameters and demographics. We find that most homeowners have a strong distaste for inequality in their neighborhood, and the distaste increases with income and goes down with education level. Counterfactual experiments show that reallocating Public Rental Housing by half can increase the welfare of homeowners by about HK$8,000 on average per year, an amount which is equivalent to increasing the housing unit by 20 square feet or reducing the age of the unit by 5 years.hedonic pricing; housing; income inequality

Agree to Disagree: Measuring Hidden Dissents in FOMC Meetings

Based on a record of dissents on FOMC votes and transcripts of the meetings from 1976 to 2017, we develop a deep learning model based on self-attention modules to create a measure of the level of disagreement for each member in each meeting. While dissents are rare, we find that members often have reservations with the policy decision. The level of disagreement is mostly driven by current or predicted macroeconomic data, and personal characteristics of the members play almost no role. We also use our model to evaluate speeches made by members between meetings, and we find a weak correlation between the level of disagreement revealed in them and that of the following meeting. Finally, we find that the level of disagreement increases whenever monetary policy action is more aggressive

Love Thy Neighbor: Income Distribution and Housing Preferences

Do homeowners prefer living in an area with a more equal distribution of income? We answer this question by estimating a semi-parametric hedonic pricing model for about 90,000 housing units transacted in Hong Kong between 2005 and 2006. We first identify a hedonic price function by locally regressing the rental price of the housing unit on its intrinsic and neighborhood characteristics, one of which is the Gini coefficient for household income of the constituency area. We then combine the estimates with a log utility function to obtain the heterogeneous preference parameters. Finally, we estimate the joint distribution of the preference parameters and demographics. We find that most homeowners have a strong distaste for inequality in their neighborhood, and the distaste increases with income and goes down with education level. Counterfactual experiments show that reallocating Public Rental Housing by half can increase the welfare of homeowners by about HK$8,000 on average per year, an amount which is equivalent to increasing the housing unit by 20 square feet or reducing the age of the unit by 5 years

Love Thy Neighbor: Income Distribution and Housing Preferences

Do homeowners prefer living in an area with a more equal distribution of income? We answer this question by estimating a semi-parametric hedonic pricing model for about 90,000 housing units transacted in Hong Kong between 2005 and 2006. We first identify a hedonic price function by locally regressing the rental price of the housing unit on its intrinsic and neighborhood characteristics, one of which is the Gini coefficient for household income of the constituency area. We then combine the estimates with a log utility function to obtain the heterogeneous preference parameters. Finally, we estimate the joint distribution of the preference parameters and demographics. We find that most homeowners have a strong distaste for inequality in their neighborhood, and the distaste increases with income and goes down with education level. Counterfactual experiments show that reallocating Public Rental Housing by half can increase the welfare of homeowners by about HK$8,000 on average per year, an amount which is equivalent to increasing the housing unit by 20 square feet or reducing the age of the unit by 5 years

The Ethanol Extract of Fructus trichosanthis Promotes Fetal Hemoglobin Production via p38 MAPK Activation and ERK Inactivation in K562 Cells

Pharmacological stimulation of fetal hemoglobin (HbF) expression may be a promising approach for the treatment of beta-thalassemia. In this study, the effects of Fructus trichosanthis (FT) were investigated in human erythroleukemic K562 cells for their gamma-globin mRNA and HbF-induction activities. The role of signaling pathways, including extracellular regulated protein kinase (ERK) and p38 mitogen-activated protein kinase (MAPK), was also investigated. It was found that the ethanol extract of FT significantly increased gamma-globin mRNA and HbF levels, determined by real-time reverse transcription polymerase chain reaction and enzyme linked immunosorbent assay, respectively, in dose- and time-dependent manner. Total Hb (THb) levels were also elevated in the concentrations without cytotoxicity (<80 μg mL−1). Pre-treatment with p38 MAPK inhibitor SB203580 blocked the stimulatory effects of FT extract in total and HbF induction. In contrast, no change in HbF was observed when treated with ERK inhibitor PD98059. Furthermore, FT ethanol extract activated p38 MAPK and inhibited ERK signaling pathways in K562 cells, as revealed in western blotting analysis. In addition, SB203580 significantly abolished p38 MAPK activation when the cells were treated with FT. In summary, the ethanol extract of FT was found to be a potent inducer of HbF synthesis in K562 cells. The present data delineated the role of ERK and p38 MAPK signaling as molecular targets for pharmacologic stimulation of HbF production upon FT treatment

Tax-driven Bunching of Housing Market Transactions: The case of Hong Kong

We study the implications of property market transaction tax. As property buyers are obligated to pay a transaction tax (“stamp duty”, or SD) where the rate increases with the value of the transaction, there are incentives to trade at or just below the cutoff points of the tax schedule. Thus, both “bunching in transactions” and “underpricing” should be observed near those cutoffs. Furthermore, the bunching points should change with the tax schedule. We confirm these conjectures with a rich dataset from the Hong Kong housing market and provide a measure of the tax avoidance