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on Financial Markets |
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Issue of 2010‒03‒06
four papers chosen by |
| By: | Exterkate, P.; Dijk, D.J.C. van; Heij, C.; Groenen, P.J.F. (Erasmus Econometric Institute) |
| Abstract: | Various ways of extracting macroeconomic information from a data-rich environment are compared with the objective of forecasting yield curves using the Nelson-Siegel model. Five issues in factor extraction are addressed, namely, selection of a subset of the available information, incorporation of the forecast objective in constructing factors, specification of a multivariate forecast objective, data grouping before constructing factors, and selection of the number of factors in a data-driven way. Our empirical results show that each of these features helps to improve forecast accuracy, especially for the shortest and longest maturities. The data-driven methods perform well in relatively volatile periods, when simpler models do not suffice. |
| Keywords: | yield curve prediction;Nelson-Siegel model;factor extraction;variable selection |
| Date: | 2010–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureir:1765018254&r=fmk |
| By: | Linda S. Goldberg; Craig Kennedy; Jason Miu |
| Abstract: | Following a scarcity of dollar funding available internationally to banks and financial institutions, starting in December 2007 the Federal Reserve established or expanded Temporary Reciprocal Currency Arrangements with fourteen foreign central banks. These central banks had the capacity to use these swap facilities to provide dollar liquidity to institutions in their jurisdictions. This paper presents the developments in the dollar swap facilities through the end of 2009. The facilities were a response to dollar funding shortages outside the United States during a period of market dysfunction. Formal research, as well as more descriptive accounts, suggests that the dollar swap lines among central banks were effective at reducing the dollar funding pressures abroad and stresses in money markets. The central bank dollar swap facilities are an important part of a toolbox for dealing with systemic liquidity disruptions. |
| JEL: | E44 F36 G32 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15763&r=fmk |
| By: | Vincent Brousseau (IESEG School of Management); Alexandre Chailloux (International Monetary Fund); Alain Durré (IESEG School of Management, LEM-CNRS (UMR 8179)) |
| Abstract: | With the onset of the financial turmoil in August 2007, pricing references on the money market interest rates have been shocked. The segment of unsecured deposit transactions, which represent the cornerstone of capital markets, and is used as basis for the setting of money market benchmark essential to the indexing of trillions of derivative contracts and loans, has been particularly damaged by the surge in counterparty risk. The lack of confidence between traders and the growing fear of counterparty’s bankruptcies have led progressively to a drying out of the unsecured market turnover. After a relative improvement in early 2008, market activity in the unsecured market has again dried up with the reinforcement of the financial crisis following the collapse of Lehman Brothers. Although there are good reasons to think that the market activity in the cash unsecured segment of the money market has remained distorted, in particular for maturities beyond the very short-term, the OIS-LIBOR spreads have been declining extremely steadily since January 2009, both in major currencies and at various maturities, seemingly pointing to a normalization of the money market. On the basis of a simple econometric supported by statistical evidence applied to the euro area date, this paper analyses whether recent developments in the unsecured interest rates actually support a diagnosis of renewed market activity, and of normalization of the unsecured market. |
| Keywords: | LIBOR, EURIBOR, secured segment, fixings, market distortions, financial crisis. |
| JEL: | G14 C02 C32 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:e200910&r=fmk |
| By: | Dimitrios Tsomocos; Charles Goodhart; M.U. Peiris; Alexandros Vardoulakis |
| Abstract: | Until recently, financial services regulation remained largely segmented along national lines. The integration of financial markets, however, calls for a systematic and coherent approach to regulation. This paper studies the effect of market based regulation on the proper functioning of the interbank market. Specifically, we argue that restrictions on the payout of dividends by banks can reduce their expected default on (interbank) loans, stimulate trade in this market and improve the welfare of consumers. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp648&r=fmk |