Bond pricing with a surface of zero coupon yields

We present a new method for consistent cross‐sectional pricing of all traded bonds in the fixed income market. By applying thin plate regression splines ( Wood, 2003 ) to bootstrapped zero coupon bond yields ( Hagan and West, 2006 ), the method decomposes traded yields into a risk‐free component plus premia for credit and liquidity risks, where the decomposition is consistent with the market valuations and underlying cash flows of the bonds. We apply the framework to end of quarter yield data from 2008 to 2011 on Australian dollar denominated semi‐government, supranational and agency (SSA) bonds, and find that the surface provides an excellent fit to the underlying zero coupon yield curves. Further, the decomposition of selected yield time series and cross‐sections demonstrates how credit premia increased for Australian SSA bonds through the Global Financial Crisis (GFC), but were counterbalanced by liquidity discounts as investors sought safe haven securities.     

Silver fetters? The rise and fall of the Chinese price level 1928–34

We show how the silver standard transmitted world silver price fluctuations into China and made the Chinese price level closely linked to the world silver price. Inflation was transmitted between 1929 and 1931 when the world silver price was falling; while deflation was transmitted during 1932 and 1934 when the world silver price was rising. Using micro-level evidence and counterfactual simulations, we show that the exchange rate was the main shock transmission channel, and silver stocks played an insignificant role.     

Money,interest rate spreads,and economic activity

Money, Interest Rate Spreads, and Economic Activity. —Numerous empirical studies for industrial countries have shown that the term structure of interest rates is a good indicator for future output growth. This paper analyzes whether the interest rate spread contains any additional predictive power if the model includes the money stock. A multivariate error-correction framework is applied to three European economies — France, Germany, and Italy. Granger causality tests are performed for various monetary aggregates and the term structure. The evidence concerning the marginal information content is mixed: For France and Italy, the term structure does not improve the results of the basic model whereas it is significant for Germany.     

THE DETERMINANTS OF EMPLOYMENT: A SECTORAL ANALYSIS FOR TURKEY

This paper analyzes the effects of wages, openness, and demand on employment in the private manufacturing industry in Turkey based on panel data for the period of 1973–2001. The wage elasticity of employment increases after trade liberalization. Nevertheless, output elasticity of labor demand is higher than wage elasticity in the total manufacturing sector for the whole estimation period, and in the high- and medium-skilled sectors in the post-1980 period. Trade effects, after controlling for output, seem to have a low economic significance. The positive effects of exports on the labor intensity of production are low or are offset by labor saving effects of foreign trade, particularly in the high- and medium-skilled sectors. On the other hand, there is some evidence of a negative import effect in the low-skilled sectors, whereas in the high- and medium-skilled group a complementary relation between domestic labor and imported inputs dominates the effects.     

Lights out? COVID-19 containment policies and economic activity

This paper estimates how strongly COVID-19 containment policies have impacted aggregate economic activity. We use a difference-in-differences methodology to estimate how containment zones of different severity across India impacted district-level nighttime light intensity, as well as household income and consumption. From May to July 2020, nighttime light intensity was 9.1 % lower in districts with the most severe restrictions compared with districts with the least severe restrictions, which could imply between 5.8 % and 6.6 % lower GDP. Nighttime light intensity was only 1.6 % lower in districts with intermediate restrictions. The differences were largest in May during the graded lockdown, and tapered in June and July. Lower house-hold income and consumption corresponding to zone-wise restrictions corroborate these results. Stricter containment measures had larger impacts in districts with greater population density, older residents, and more services employment. The large magnitudes of the findings suggest that governments should carefully consider the economic costs of country-wide pandemic containment policies while weighing the trade-offs against public health benefits. Keywords: Containment policies, COVID-19, Nighttime lights, India     

Forecasting U.S. car sales and car registrations in Japan: Rationality, accuracy and herding

We analyze forecasts of car sales in the U.S. and forecasts of car registrations in Japan. We document a substantial heterogeneity of forecasts, and we show that, based on traditional criteria, forecasts are neither rational nor unbiased. We also report that forecasters anti-herd, that is, forecasters seem to intentionally scatter their forecasts around a consensus forecast. We further show that cross-sectional heterogeneity of forecasts with regard to anti-herding transmits onto cross-sectional heterogeneity of forecast accuracy. Specifically, we document that forecasters who herd provide more accurate forecasts than their colleagues who anti-herd.