Modelling and Forecasting the Yield Curve

How can we parsimoniously model and accurately forecast the term structure of interest rates? Is there substantial predictability of bond returns and what information sets should we use for these predictions? What are the properties of the risk premium in long-term interest rates? To what degree are macroeconomic risks spanned by the yield curve, and what do unspanned macro risks signify?

These questions will be examined in the CES Lectures delivered by Michael Bauer in April. The answers have important implications for an understanding of the interactions between the macroeconomy, monetary policy and financial markets. In his lecture series, Mr Bauer will provide an introduction to the literature on yield curve modelling and discuss the various answers that this literature has given. Macro-finance linkages of bond markets will be strongly emphasised.

Michael D. Bauer is an Economist in the Research Department of the Federal Reserve Bank of San Francisco, having previously served as Lecturer at the Department of Economics, University of California, San Diego, the university that also awarded him a PhD. His MA is in Quantitative Economic and Finance from the University of St. Gallen.

Mr Bauer’s publications for the Federal Reserve Bank of San Francisco include “What Caused the Decline in Long-term Yields?”, “Monetary Policy and Interest Rate Uncertainty”, “Fed Asset Buying and Private Borrowing Rates”, “Signals from Unconventional Monetary Policy” and “What Moves the Interest Rate Term Structure?”