Markov Switching Risk Premium and the term structure of interest rates. Empirical evidence from US post-war interest rates

This paper considers the basic present value model of interest rates under rational expectations with two additional features. First, following McCallum (1994), the model assumes a policy reaction function where changes in the short-term interest rate are determined by the long-short spread. Second, the short-term interest rate and the risk premium processes are characterized by a Markov regime-switching model. Using US post-war interest rate data, this paper finds evidence that a two-regime switching model fits the data better than the basic model. The estimation results also show the presence of two alternative states displaying quite different features.

The changing behaviour of the term structure of post-war US

Using U.S. interest rate data covering the period 1950:1-1992:7, this paper tests the rational expectations model of the term structure of interest rates. We show evidence that the rational expectations model of the term structure is supported by the data during the seventies and a period lasting from the mid-eighties to the end of the sample. However, during the …fties, sixties and a period that covers most of the Volcker’s office term (from September 1979 to April 1986) the term structure model is rejected by the data. Moreover, wefind evidence of regime changes in the short-term rate process and the term structure of interest rates. These regime switches roughly coincide with changes in the Federal Reserve chairman. The switches in monetary policy taking place when the chairmanship of the Federal Reserve changes therefore seem to play an important role in characterizing the term structure of interest rates.

An Alternative View of the US Price-Dividend Ratio Dynamics

As a necessary condition for the validity of the present value model, the price-dividend ratio must be stationary. However, significant market episodes seem to provide evidence of prices significantly drifting apart from dividends while other episodes show prices anchoring back to dividends. This paper investigates the stationarity of this ratio in the context of a Markov- switching model à la Hamilton (1989) where an asymmetric speed of adjustment towards a unique attractor is introduced. A three-regime model displays the best regime identification and reveals that the first part of the 90’s boom (1985-1995) and the post-war period are characterized by a stationary state featuring a slow reverting process to a relatively high attractor. Interestingly, the latter part of the 90’s boom (1996-2000), characterized by a growing price-dividend ratio, is entirely attributed to a stationary regime featuring a highly reverting process to the attractor. Finally, the post-Lehman Brothers episode of the subprime crisis can be classified into a temporary nonstationary regime.

Does the Term Spread play a role in the FED's reaction function? An Empirical Investigation

Using US data for the period 1967:5-2002:4, this paper empirically investigates the performance of a Fed’s reaction function (FRF) that (i) allows for the presence of switching regimes, (ii) considers the long-short term spread in addition to the typical variables, (iii) uses an alternative monthly indicator of general economic activity suggested by Stock and Watson (1999), and (iv) considers interest rate smoothing. The estimation results show the existence of three switching regimes, two characterized by low volatility and the remaining regime by high volatility. Moreover, the scale of the responses of the Federal funds rate to movements in the rate of inflation and the economic activity index depends on the regime. The estimation results also show robust empirical evidence that the importance of the term spread in the FRF has increased over the sample period and the FRF has been more stable during the term of office of Chairman Greenspan than in the pre-Greenspan period.

Is there a Phillips Curve in the US and the EU15 Countries? An empirical investigation

This paper studies the comovement between output and inflation in the EU15 countries. Following den Haan (2000), I use the correlations of VAR forecast errors at different horizons in order to analyze the output-inflation relationship. The empirical results show that eight countries display a significant positive comovement between output and inflation. Moreover, the empirical evidence suggests that a Phillips curve phenomenom is more likely to be detected in countries where inflation is more stable.

Switching Regimes in the Term Structure of Interest Rates During U.S. Post-War: A case for the Lucas proof equilibrium?

Published as an article in: Studies in Nonlinear Dynamics & Econometrics, 2004, vol. 8, issue 1, pages 5.

The role of the term spread in an augmented Taylor rule: An empirical investigation

Using US data for the period 1967:5-2002:4, this paper empirically investigates the performance of an augmented version of the Taylor rule (ATR) that (i) allows for the presence of switching regimes, (ii) considers the long-short term spread in addition to the typical variables, (iii) uses an alternative monthly indicator of general economic activity suggested by Stock and Watson (1999), and (iv) considers interest rate smoothing. The estimation results show the existence of switching regimes, one characterized by low volatility and the other by high volatility. Moreover, the scale of the responses of the Federal funds rate to movements in the term spread, inflation and the economic activity index depend on the regime. The estimation results also show robust empirical evidence that the ATR has been more stable during the term of office of Chairman Greenspan than in the pre-Greenspan period. However, a closer look at the Greenspan period shows the existence of two alternative regimes and that the response of the Fed funds rate to inflation has not been significant during this period once the term spread is considered.

Lengua y derecho a la educación en la Comunidad Autónoma del País Vasco : reflexiones jurídicas sobre el tránsito hacia un nuevo modelo

The article analyzes the legal regime of Euskara in the education system of the Autonomous Community of the Basque Country (capv). In the capv, the legislation recognizes the right to choose the language of study during the educational cycle. The students are separated into different classrooms based on their language preference. This system of separation (of language models) has made it possible to make great strides, although its implementation also suggests aspects which, from the perspective of a pluralistic Basque society on its way towards greater social, political and language integration, call for further reflection The general model for language planning in the capv was fashioned in the eighties as a model characterized by the guarantee of spaces of language freedom, and the educational system was charged with making the learning of the region’s autochthonous language more widespread. At this point, we already have a fair degree of evidence on which to base an analysis of the system of language models and we are in a position to conclude that perhaps the educational system was given too heavy a burden. Official studies on language performance of Basque schoolchildren show (in a way that is now fully verified) that not all the students who finish their mandatory period of schooling achieve the level of knowledge of Euskara required by the regulations. When faced with this reality, it becomes necessary for us to articulate some alternative to the current configuration of the system of language models, one that will make it possible in the future to have a Basque society that is linguistically more integrated, thereby avoiding having the knowledge or lack of knowledge of one of the official languages become a language barrier between two communities. Many sides have urged a reconsideration of the system of language models. The Basque Parliament itself has requested the Department of Education to design a new system. This article analyzes the legal foundations on which the current system is built and explores the potential avenues for legal cooperation that would make it possible to move towards a new system aimed at guaranteeing higher rates of bilingualism. The system would be sufficiently flexible so as to be able to respond to and accommodate the different sociolinguistic realities of the region.

Can the change in the composition of the US GDP explain the Great Moderation? A test via oil price shocks

The paper investigates whether the growing GDP share of the services sector can contribute to explain the great moderation in the US. We identify and analyze three oil price shocks and use a SVAR analysis to measure their economic impact on the US economy at both the aggregate and the sectoral level. We find mixed support for the explanation of the great moderation in terms of shrinking oil shock volatilities and observe that increases (decreases) in oil shock volatilities are contrasted by a weakening (strengthening) in their transmission mechanism. Across sectors, services are the least affected by any oil shock. As the contribution of services to the GDP volatility increases over time, we conclude that a composition effect contributed to moderate the conditional volatility to oil shocks of the US GDP.

Two-magnon bound state causes ultrafast thermally induced magnetisation switching

There has been much interest recently in the discovery of thermally induced magnetisation switching using femtosecond laser excitation, where a ferrimagnetic system can be switched deterministically without an applied magnetic field. Experimental results suggest that the reversal occurs due to intrinsic material properties, but so far the microscopic mechanism responsible for reversal has not been identified. Using computational and analytic methods we show that the switching is caused by the excitation of two-magnon bound states, the properties of which are dependent on material factors. This discovery allows us to accurately predict the onset of switching and the identification of this mechanism will allow new classes of materials to be identified or designed for memory devices in the THz regime.

The First Occurrence in the Fossil Record of an Aquatic Avian Twig-Nest with Phoenicopteriformes Eggs: Evolutionary Implication

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The patents in the introduction of reinforced concrete in Spain: "Alhondiga de Bilbao" case study

Reinforced concrete structures are introduced in Spain mainly by French influence. This happens in the late nineteenth century, following the scheme operating through proprietary systems prevailing in Europe. Systems initially have poor scientific support reaching, even early twentieth century, an impediment to the development of concrete structures, due to the lack of knowledge shown, as well as due to a series of accidents. Therefore, from the end of the first decade of the past century are enacted a series of regulations in many countries, that will change the design and calculation of reinforced concrete structure. The knowledge of the environment of the patent systems, its beginnings and the circumstances of their application allow us to understand the constraints of the early concrete structures, as presented in the Bilbao wine store (1906).

Parity-dependent State Engineering and Tomography in the ultrastrong coupling regime

Reaching the strong coupling regime of light-matter interaction has led to an impressive development in fundamental quantum physics and applications to quantum information processing. Latests advances in different quantum technologies, like superconducting circuits or semiconductor quantum wells, show that the ultrastrong coupling regime (USC) can also be achieved, where novel physical phenomena and potential computational benefits have been predicted. Nevertheless, the lack of effective decoupling mechanism in this regime has so far hindered control and measurement processes. Here, we propose a method based on parity symmetry conservation that allows for the generation and reconstruction of arbitrary states in the ultrastrong coupling regime of light-matter interactions. Our protocol requires minimal external resources by making use of the coupling between the USC system and an ancillary two-level quantum system.

What Can the Brain Teach Us about Winemaking? An fMRI Study of Alcohol Level Preferences

Over the last few decades, wine makers have been producing wines with a higher alcohol content, assuming that they are more appreciated by consumers. To test this hypothesis, we used functional magnetic imaging to compare reactions of human subjects to different types of wine, focusing on brain regions critical for flavor processing and food reward. Participants were presented with carefully matched pairs of high- and low- alcohol content red wines, without informing them of any of the wine attributes. Contrary to expectation, significantly greater activation was found for low- alcohol than for high- alcohol content wines in brain regions that are sensitive to taste intensity, including the insula as well as the cerebellum. Wines were closely matched for all physical attributes except for alcohol content, thus we interpret the preferential response to the low- alcohol content wines as arising from top-down modulation due to the low alcohol content wines inducing greater attentional exploration of aromas and flavours. The findings raise intriguing possibilities for objectively testing hypotheses regarding methods of producing a highly complex product such as wine.

Scalable quantum memory in the ultrastrong coupling regime

Circuit quantum electrodynamics, consisting of superconducting artificial atoms coupled to on-chip resonators, represents a prime candidate to implement the scalable quantum computing architecture because of the presence of good tunability and controllability. Furthermore, recent advances have pushed the technology towards the ultrastrong coupling regime of light-matter interaction, where the qubit-resonator coupling strength reaches a considerable fraction of the resonator frequency. Here, we propose a qubit-resonator system operating in that regime, as a quantum memory device and study the storage and retrieval of quantum information in and from the Z(2) parity-protected quantum memory, within experimentally feasible schemes. We are also convinced that our proposal might pave a way to realize a scalable quantum random-access memory due to its fast storage and readout performances.