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Was there a "Greenspan conundrum" in the Euro Area ?

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  • Gildas Lamé

    (INSEE-CREST)

Abstract

This paper implements an affine term structure model that accommodates "unspanned" macro risks for the Euro area, i.e. distinct from yield-curve risks. I use a Near-Cointegrated VAR-like approach to obtain a better estimation of the historical dynamics of the pricing factors, thus providing more accurate estimates of the term premium incorporated into the Eurozone’s sovereign yield curve. I then look for notable episodes of the monetary cycle where long yields display a puzzling behavior vis-à-vis the short rate in contrast with the Expectation Hypothesis. The Euro-area bond market appears to have gone through its own "Greenspan conundrum". At least three "conundra" episodes can be singled out in the Eurozone between January 1999 and August 2008. The term premium substantially contributed to these odd phenomena.

Suggested Citation

  • Gildas Lamé, 2013. "Was there a "Greenspan conundrum" in the Euro Area ?," Working Papers 2013-07, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2013-07
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    References listed on IDEAS

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    1. Jardet, Caroline & Monfort, Alain & Pegoraro, Fulvio, 2013. "No-arbitrage Near-Cointegrated VAR(p) term structure models, term premia and GDP growth," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 389-402.
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    More about this item

    Keywords

    Affine term structure models; Unspanned macro risks; Monetary policy; Expectation Hypothesis; Term Premium; Macroeconomy;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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