Arbeitspapier
Bonds, currencies and expectational errors
We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict bond and currency returns. The model also creates the downward sloping term structure of carry trade returns documented by Lustig et al. (2019), difficult to replicate in a rational expectations framework. Consistent with the model, we find that variables that predict bond and currency returns also predict survey-based expectational errors concerning interest and FX rates. The model explains why monetary policy induces drift patterns in bond and currency markets and predicts that long-term rates are a better gauge of market's short rate expectations than previously thought.
- ISBN
-
978-82-8379-151-8
- Sprache
-
Englisch
- Erschienen in
-
Series: Working Paper ; No. 3/2020
- Klassifikation
-
Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Foreign Exchange
Expectations; Speculations
- Thema
-
Bond and currency premia
sticky expectations
interest rateforecast errors
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Granziera, Eleonora
Sihvonen, Markus
- Ereignis
-
Veröffentlichung
- (wer)
-
Norges Bank
- (wo)
-
Oslo
- (wann)
-
2020
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Granziera, Eleonora
- Sihvonen, Markus
- Norges Bank
Entstanden
- 2020
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