Caroline Jardet

Term structure anomalies: Term premium or peso-problem?

The goal of this paper is to develop a test for the relative importance of the time-varying term premium and the peso-problem for rejection of the Expectation Hypothesis of the Term Structure (EHTS). Our reasoning is based on a term structure model that allows for both phenomena simultaneously. If we assume that only one regime is observed ex-post, we can estimate all the information we need to evaluate distortions generated by both hypotheses. We can also test the presence of a peso-problem. Firstly we find that a peso-problem might explain rejection of the EHTS in Germany and the United Kingdom after the European exchange rate crisis. Secondly, we show that this explanation appears inappropriate to explain the EHTS failure in the United States.

Determinants of Long-Term Interest Rates in the United States and the Euro Area: A Multivariate Approach

This article looks at the factors explaining the level of US and European long-term interest rates between 1986 and 2005. We begin by selecting the structural determinants of long-term interest rates, dealing with the US and European cases separately. However, a univariate framework cannot capture market integration and suffers from a number of statistical limitations. Switching to a multivariate setting reveals spillover from US to euro area long-term yields, with no reciprocal effect. The model allows us to draw up a timeline of events affecting the level of US and European long-term interest rates. Accordingly, the bursting of the internet bubble, purchases by foreign agents, both official and private, and the increase in global liquidity all seemingly exerted downward pressure on US long-term interest rates and, indirectly, on euro area long rates.

Macro Stress Testing with a Macroeconomic Credit Risk Model: Application to the French Manufacturing Sector

The aim of this paper is to build and estimate a macroeconomic model of credit risk for the French manufacturing sector. This model is based on Wilsons CreditPortfolioView model (1997a, 1997b); it enables us to simulate loss distributions for a credit portfolio for several macroeconomic scenarios. We implement two simulation procedures based on two assumptions relative to probabilities of default (PDs): in the first procedure, firms are assumed to have identical default probabilities; in the second, individual risk is taken into account. The empirical results indicate that these simulation procedures lead to quite different loss distributions. For instance, a negative one standard deviation shock on output leads to a maximum loss of 3.07% of the financial debt of the French manufacturing sector, with a probability of 99%, under the identical default probability hypothesis versus 2.61% with individual default probabilities.

Euro Area monetary policy shocks: impact on financial asset prices during the crisis?

We use high-frequency intraday interest rate data to measure euro area monetary policy shocks on the days of ECB interest rate announcements between 2002 and 2013. In line with Gurkaynak et al. (2005), we look at monetary policy shocks along two time dimensions: one related to the current level of short-term interest rates and a second related to expectations for the future path of these rates. We undertake regression analysis in order to determine the impact of monetary policy shocks on euro-denominated financial asset prices and confirm that shocks related to the future path of monetary policy are an important driver, particularly for longer-term bond yields. We find that this relationship has changed for certain asset classes since the onset of the crisis, notably the sovereign bonds of stressed euro area countries. These findings highlight the changed nature of the monetary policy transmission mechanism for some euro area countries during the sovereign debt crisis.