The Yield Curve and Financial Risk Premia: Implications for Monetary Policy (Lecture Notes in Economics and Mathematical Systems, 654)

The determinants of yield curve dynamics have been thoroughly discussed in finance models. However, little can be said about the macroeconomic factors behind the movements of short- and long-term interest rates as well as the risk compensation demanded by financial investors. By taking on a macro-finance perspective, the book’s approach explicitly acknowledges the close feedback between monetary policy, the macroeconomy and financial conditions. Both theoretical and empirical models are applied in order to get a profound understanding of the interlinkages between economic activity, the conduct of monetary policy and the underlying macroeconomic factors of bond price movements. Moreover, the book identifies a broad risk-taking channel of monetary transmission which allows a reassessment of the role of financial constraints; it enables policy makers to develop new guidelines for monetary policy and for financial supervision of how to cope with evolving financial imbalances. In recognition of his excellent thesis, the author received the __Suedwestbank Award 2011__. The determinants of yield curve dynamics have been thoroughly discussed in finance models. However, little can be said about the macroeconomic factors behind the movements of short- and long-term interest rates as well as the risk compensation demanded by financial investors. By taking on a macro-finance perspective, the book ́ s approach explicitly acknowledges the close feedback between monetary policy, the macroeconomy and financial conditions. Both theoretical and empirical models are applied in order to get a profound understanding of the interlinkages between economic activity, the conduct of monetary policy and the underlying macroeconomic factors of bond price movements. Moreover, the book identifies a broad risk-taking channel of monetary transmission which allows a reassessment of the role of financial constraints; it enables policy makers to develop new guidelines for monetary policy and for financial supervision of how to cope with evolving financial imbalances. In recognition of his excellent thesis, the author℗ received the Suedwestbank Award 2011. ℗ ℗ Front Matter....Pages i-xiii Introduction....Pages 1-6 Front Matter....Pages 7-7 Financial Markets and Asset Pricing....Pages 9-41 The Theory of the Term Structure of Interest Rates....Pages 43-82 A Systematic View on Term Premia....Pages 83-114 Front Matter....Pages 115-115 The Macro-Finance View of the Term Structure of Interest Rates....Pages 117-157 Monetary Policy in the Presence of Term Structure Effects....Pages 159-193 Front Matter....Pages 195-195 Financial Risk and Boom-Bust Cycles....Pages 197-263 Conclusion and Outlook....Pages 265-268 Dynamic Optimization....Pages 269-272 State-Space Model and Maximum Likelihood Estimation....Pages 273-276 Recursive Nature of the Expectations Hypothesis....Pages 277-278 Derivation of Affine Coefficient Loadings....Pages 279-281 Optimal Monetary Policy....Pages 283-288 Back Matter....Pages 289-314 Felix Geiger. Includes Bibliographical References (p. 289-314).