Changes in the shape of the yield curve have traditionally been one of the key macroeconomic indicators of a likely change in economic outlook. However, the recent financial crises have created a challenge to the management of monetary policy, demanding a revision in the way that policymakers model expected changes in the economy. This volume brings together central bank economists and leading academic monetary economists to propose new methods for modelling the behaviour of interest rates. Topics covered include: the analysis and extraction of expectations of future monetary policy and inflation; the analysis of the short-term dynamics of money market interest rates; the reliability of existing models in periods of extreme market volatility and how to adjust them accordingly; and the role of government debt and deficits in affecting sovereign bond yields and spreads. This book will interest financial researchers and practitioners as well as academic and central bank economists.

Proposes new methods for modelling the behaviour of interest rates and analyses how the recent financial crises has changed the role of central banks in managing monetary policy

Features reflections from top academics and central bankers on the possible limitations of existing models and how to remedy them

Provides a picture of the current state of macro-finance research and suggests areas where new research is likely to be most productive

Jagjit S. Chadha, University of Kent, Canterbury

Jagjit S. Chadha is Professor of Economics at the University of Kent and is on the Advisory Board of the Centre of International Macroeconomics and Finance at the University of Cambridge. His research involves incorporating financial factors in macroeconomic models and he has acted as an advisor to many central banks throughout the world.

Alain C. J. Durré, European Central Bank, Frankfurt

Alain C. J. Durré is Principal Economist in the Financial Research Division of the Directorate General Research of the European Central Bank and is Associate Professor of Finance at IÉSEG-School of Management at Lille Catholic University. He is also a member of the Centre National de la Recherche Scientifique (LEM-CNRS) in France and acts on occasion as Monetary Policy Advisor for the International Monetary Fund. He has published various papers on monetary and financial economics in many leading academic journals.

Michael A. S. Joyce, Bank of England

Michael A. S. Joyce is an Adviser in the Macro Financial Analysis Division of the Bank of England and has over twenty years experience working at the Bank of England in various economics roles. His recent work has focused on modelling the term structure of interest rates and on analysing the effects of the UK's quantitative easing policy.

Lucio Sarno, City University, London

Lucio Sarno is a Professor of Finance, Deputy Dean and Head of the Finance Faculty at Cass Business School, City University, London. His main research interests are in international finance, and he is a leading expert on exchange rates, a subject on which he writes prolifically and on which he is routinely called for advice by governments, international organizations and financial companies around the world.

Contributors

Paul Tucker, J. S. Chadha, A. C. J. Durr, M. A. S. Joyce, L. Sarno, Philip Turner, Frank Smets, Daniel L. Thornton, Patrik Edsparr, Paul Fisher, Alain Monfort, Jean-Paul Renne, James M. Steeley, Yvan Lengwiler, Carlos Lenz, Jean-Sbastien Fontaine, M. A. H. Dempster, Jack Evans, Elena Medova, Morten Bech, Elizabeth Klee, Viktors Stebunovs, Andrea Buraschi, Andrea Carnelli, Paul Whelan, Juan Angel Garcia, Thomas Werner, Hans Dewachter, Leonardo Iania, Marco Lyrio, Marcello Pericoli, Priscilla Burity, Marcelo Medeiros, Luciano Vereda, Luigi Marattin, Paolo Paesani, Simone Salotti