Examining the Impact of the Government Spending on the Term Structure of Interest Rates: A Macro-Finance Approach
| Principal investigator: | Mgr. Ing. Adam Kučera Ph.D. |
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| Collaborators: |
prof. Ing. Evžen Kočenda Ph.D., DSc. Ing. Aleš Maršál M.A. |
| Description: | The purpose of our research lies primary in evaluating the effects of fiscal policy on the dynamics of the term structure of interest rates and explaining the transmission mechanism between the two. The link between government spending and the term structure has significant policy consequences, including the correct evaluation of the true costs and benefits of various fiscal measures. Despite its importance, it has been mostly omitted in the literature. We want to take advantage of the recent advances in macro-finance modeling literature to estimate various term structure models linking macroeconomic factors to bond prices. The main methodological advancement of our approach lies in the careful identification of government spending shocks in the spirit of Ramey (2011). Furthermore, by utilizing multiple financial modelling frameworks simultaneously, we are able to examine the empirical linkages in the full extent. To give theoretical interpretation to our results, we take the challenge and develop DSGE model matching the core macro and finance stylized facts and study the transmission of government spending shocks and uncertainty to asset prices. |
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| End date: | 2017 |
| Publications: | Identification of triggers of U.S. yield curve movements Interest Rates Modeling and Forecasting: Do Macroeconomic Factors Matter? |
| Conferences: | 20th EBES Conference in Vienna International Conference on Economic Research (ECONALANYA 2017) |
