BORIS Theses

BORIS Theses
Bern Open Repository and Information System

Sparse Factors, Streamlined Time-variation, and Twisted Yield Curves

Beyeler, Simon (2019). Sparse Factors, Streamlined Time-variation, and Twisted Yield Curves. (Thesis). Universität Bern, Bern

19beyeler_s.pdf - Thesis
Available under License Creative Commons: Attribution-Noncommercial-No Derivative Works (CC-BY-NC-ND 4.0).

Download (242kB) | Preview


Chapter 1: Factor Augmented VAR Revisited - A Sparse Dynamic Factor Model Approach with Sylvia Kaufmann We combine the factor augmented VAR framework with recently developed estimation and identification procedures for sparse dynamic factor models. Working with a sparse hierarchical prior distribution allows us to discriminate between zero and non-zero factor loadings. The non-zero loadings identify the unobserved factors and provide a meaningful economic interpretation for them. Applying our methodology to US macroeconomic data reveals indeed a high degree of sparsity in the data. We use the estimated FAVAR to study the effect of a monetary policy shock and a shock to the term premium. Factors and specific variables show sensible responses to the identified shocks. Chapter 2: Streamlining Time-varying VAR with a Factor Structure in the Parameters I introduce a factor structure on the parameters of a Bayesian TVP-VAR to reduce the dimension of the model's state space. To further limit the scope of over-fitting the estimation of the factor loadings uses a new generation of shrinkage priors. A Monte Carlo study illustrates the ability of the proposed sampler to well distinguish between time varying and constant parameters. In an application with Swiss data the model proves useful to capture changes in the economy's dynamics due to the lower bound on nominal interest rates. Chapter 3: Shall we Twist? with Sophie Altermatt In recent monetary history, central banks around the world have started to introduce unconventional monetary policy measures, such as extending or restructuring the asset side of their balance sheet. The origin of these monetary policy tools goes back to an intervention by the U.S. Federal Reserve System under the Kennedy administration in 1961 known as Operation Twist. Operation Twist serves as a perfect laboratory to study the effectiveness of such balance sheet policies, because interest rates neither were at their lower bound nor was the economy in a historical turmoil. We assess the actions of the FED and the Treasury under Operation Twist based on balance sheet data and evaluate their success using modern time series techniques. We find that, although being of rather moderate size, the joint policy actions were effective in compressing the long-short spreads of the Treasury bond rates.

Item Type: Thesis
Dissertation Type: Cumulative
Date of Defense: 21 February 2019
Subjects: 300 Social sciences, sociology & anthropology > 330 Economics
Institute / Center: 03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics
Depositing User: Hammer Igor
Date Deposited: 10 May 2019 12:00
Last Modified: 01 Mar 2020 13:43

Actions (login required)

View Item View Item