University of California, San Diego
Graduate Student, Economics
Thesis Title: The Impact of News on Monetary Policy Expectations
James Hamilton
Allan Timmermann
Bruce Lehmann
Irina Telyukova
Dimitris Politis
About
The major use of dynamic term structure models (DTSMs) is the estimation of term premia. How do level and changes in interest rates decompose into expectations component and risk premium component?
The answer to this question depends on the specification of the market prices of risk, the connecting element between risk-neutral measure (cross sectional dynamics) and physical measure (time series properties of interest rates). The key is to appropriately restrict the risk adjustment, so that the information in the cross-section can inform our estimates of the time series properties and of the term premium.
My job market paper presents a decision-theoretic approach that enables us to choose those restrictions that are most strongly supported by the data. The evidence speaks in favor of tight zero restrictions on the prices of risk. The risk-neutral and physical measure are relatively close to each other which leads to more plausible and more precise term premium estimates than for unrestricted DTSMs common in the literature.
Contact Information
Dept. of Economics, UC San Diego
9500 Gilman Dr
La Jolla, CA 92093-0508
