CEMS PhD Course on Term Structure Models by Jens Christensen (Federal Reserve Bank of San Francisco)

April 04, 2016

April 07, 2016

On April 04-07, 2016, the CeSAM jointly organizes the 6th of its regular CEMS PhD courses in finance on "Term Structure Models and the Zero Lower Bound". The 4-day intensive course will be taught by Jens Christensen (Federal Reserve Bank of San Francisco) at the National Bank of Belgium, in Brussels. The course will cover the most recent literature on how to model the term structure of bond yields including the challenges posed by the asymmetric behavior of yields near their lower bound.

Course title: Term Structure Models and the Zero Lower Bound

The course will cover the most recent literature on how to model the term structure of bond yields including the challenges posed by the asymmetric behavior of yields near their lower bound. Jens Christensen is a leading expert in interest rate term structure modeling and his research has been widely published in leading academic journals such as the Economic Journal, the Journal of Business and Economic Statistics, the Journal of Econometrics, the Journal of Financial Econometrics, Journal of Monetary Economics, and the Journal of Money, Credit, and Banking amongst others. Jens Christensen is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco, which he joined in 2006 after receiving his PhD in finance from Copenhagen Business School. He also holds an MSc in economics from the University of Copenhagen.

Part I: Term Structure Modeling in Normal Times

In the first part of the course, we first introduce the canonical affine term structure models as outlined by Dai and Singleton (2000) with particular focus on the canonical Gaussian models whose estimation is discussed in Joslin, Singleton, and Zhu (2011) and Hamilton and Wu (2012). Second, we analyze the class of arbitrage-free Nelson-Siegel models introduced in Christensen, Diebold, and Rudebusch (2011) and its extension to allow for stochastic volatility provided in Christensen, Lopez, and Rudebusch (2014a). Third, we will discuss the estimation of these models based on the Kalman filter and issues related to finite-sample bias, see Bauer, Rudebusch, and Wu (2012) and Christensen, Lopez, and Rudebusch (2015b).

Part II: Term Structure Modeling and the Lower Bound Problem

In the second part of the course, we focus on the problems arising from the fact that the key policy rates of the world’s most prominent central banks have remained at or near their effective lower bounds for many years by now. We will study shadow-rate models and their estimation based on the extended Kalman filter in great detail since this is the leading solution to the lower bound problem. However, we will also analyze the novel stay-at-zero affine models developed by Monfort et al. (2015) and the linear-rational models introduced in Filipovic, Larsson, and Trolle (2014).

Part III: Term Structure Modeling and Applications to Policy Questions

In the third part of the course, it is demonstrated how term structure models can be used to analyze problems relevant to monetary policy. First, the analysis in Christensen and Rudebusch (2012) and Christensen and Krogstrup (2015) are described. Both studies look into how quantitative easing (QE) affects long-term interest rates. Understanding how QE works is likely to be useful for how to handle the exit from the unconventional policies. Second, we will stress test the Fed’s assets and income following Christensen, Lopez, and Rudebusch (2015a). In this case, the relevant policy questions are: What is the likelihood of large losses to the Fed’s securities portfolio? What is the chance of a halt to the remittances to the U.S. Treasury? This research emphasizes the potential costs of QE and can also be used to stress test commercial banks’ portfolios. Finally, we follow Christensen, Lopez, and Rudebusch (2010) and discuss a joint modeling of nominal and real yields in order to extract the inflation expectations embedded in Treasury yields.

Course outline

Monday 4 April
09.00‐10.30 Session 1 – Term Structure Modeling in Normal Times (1/3)
10.30‐11.00 Coffee break 
11.00‐12.30 Session 2 – Term Structure Modeling in Normal Times (2/3)
12.30‐14.00 Lunch 
14.00‐16.00 Session 3 – Student presentations (30 minutes depending on the number of presenters)

Tuesday 5 April
09.00‐10.30 Session 4 – Term Structure Modeling in Normal Times (3/3)
10.30‐11.00 Coffee break
11.00‐12.30 Session 5 – Term Structure Modeling and the Lower Bound Problem (1/3)
12.30‐14.00 Lunch
14.00‐16.00 Session 6 – Student presentations (30 minutes depending on the number of presenters)

Wednesday 6 April
09.00‐10.30 Session 7 – Term Structure Modeling and the Lower Bound Problem (2/3)
10.30‐11.00 Coffee break
11.00‐12.30 Session 8 – Term Structure Modeling and the Lower Bound Problem (3/3)
12.30‐14.00 Lunch
14.00‐15.30 Session 9 – Student presentations (30 minutes depending on the number of presenters)

Thursday 7 April
09.00‐10.30 Session 7 – Term Structure Modeling and Applications to Policy Questions (1/2)
10.30‐11.00 Coffee break
11.00‐12.30 Session 8 – Term Structure Modeling and Applications to Policy Questions (2/2)
12.30‐14.00 Lunch
14.00‐15.30 Session 9 – Student presentations (30 minutes depending on the number of presenters)

Location

 The course will take place at the National Bank of Belgium, Rue Montagne aux Herbes Potagères 61, 1000 Brussels. Belgium

Organizers

 NBB and UCL (CeSAM and CORE). We are grateful to the financial support of ILSM, CORE, the foundation Louvain and Tree Top AM.

Registration & Fees

For academics:

In order to participate, you must fill in the following Registration Form and send it with a C.V. to cesam.phd-course@uclouvain.be before 15/03/2016. Participation costs are €150 for PhD students and €400 for non-PhD students. After March 15, registration costs are €200 for PhD students and €600 for non-PhD students. It covers the 4-day course, the course material, breakfasts and lunches. The course is free for the members of the organizing institutions.

For non-academics:

Please send an email to cesam.phd-course@uclouvain.be in order to have info about the pricing and registration options.

Categories Events: