5 Works

Downside Variance Risk Premium

Bruno Feunou, Mohammad R. Jahan-Parvar & Cédric Okou
We decompose the variance risk premium into upside and downside variance risk premia. These components reflect market compensation for changes in good and bad uncertainties. Their difference is a measure of the skewness risk premium (SRP), which captures asymmetric views on favorable versus undesirable risks. Empirically, we establish that the downside variance risk premium (DVRP) is the main component of the variance risk premium. We find a positive and significant link between the DVRP and...

Price-Level versus Inflation Targeting with Financial Market Imperfections

Francisco Covas & Yahong Zhang
This paper compares price-level-path targeting (PT) with inflation targeting (IT) in a sticky-price, dynamic, general equilibrium model augmented with imperfections in both the debt and equity markets. Using a Bayesian approach, we estimate this model for the Canadian economy. We show that the model with both debt and equity market imperfections fits the data better and use it to compare PT versus the estimated current IT regime. We find that in general PT outperforms the...

Speculators, Prices and Market Volatility

Celso Brunetti, Bahattin Büyüksahin & Jeffrey Harris
We analyze data from 2005 through 2009 that uniquely identify categories of traders to assess how speculators such as hedge funds and swap dealers relate to volatility and price changes. Examining various subperiods where price trends are strong, we find little evidence that speculators destabilize financial markets. To the contrary, hedge funds facilitate price discovery by trading with contemporaneous returns while serving to reduce volatility. Swap dealer activity, however, is largely unrelated to both contemporaneous...

Cross-Border Bank Flows and Monetary Policy: Implications for Canada

Ricardo Correa, Teodora Paligorova, Horacio Sapriza & Andrei Zlate
Using the Bank for International Settlements (BIS) Locational Banking Statistics data on bilateral bank claims from 1995 to 2014, we analyze the impact of monetary policy on cross-border bank flows. We find that monetary policy in a source country is an important determinant of cross-border bank flows. In addition, we find evidence in favor of a cross-border portfolio channel that works in parallel with the traditional bank lending channel. As tighter monetary conditions in source...

Forecasting the Price of Oil

Ron Alquist, Lutz Kilian & Robert J. Vigfusson
We address some of the key questions that arise in forecasting the price of crude oil. What do applied forecasters need to know about the choice of sample period and about the tradeoffs between alternative oil price series and model specifications? Are real or nominal oil prices predictable based on macroeconomic aggregates? Does this predictability translate into gains in out-of-sample forecast accuracy compared with conventional no-change forecasts? How useful are oil futures markets in forecasting...

Registration Year

  • 2021

Resource Types

  • Text


  • Federal Reserve Board of Governors
  • Bank of Canada
  • University of Quebec at Montreal
  • University of Michigan–Ann Arbor
  • Federal Reserve Bank of Boston
  • Centre for Economic Policy Research
  • American University