NEMO ARC Project
Negative and ultra-low interest rates: behavioral and quantitative modelling
Acronym: NEMO
Lead promoter
Catherine D’Hondt (LFIN)
Co-promoters:
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Olivier Corneille (IPSY) |
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Christian Hafner (ISBA) |
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Leonardo Iania (LFIN) |
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Frédéric Vrins (LFIN) |
Post-doctoral researchers:
Emir Efendic (IPSY) (until November 2019)
Dimitra Kyriakopoulo (CORE) (until December 2019)
Elizaveta Lukmanova (CORE) (until September 2021)
Aysegul Kanay (IPSY)
PhD students:
Liana Nersisyan (LFIN) (until October 2022)
Aleksandar Todorovic (LFIN) (until September 2021)
Pavel Tretiakov (LFIN) (until September 2020)
Linqi Wang (LFIN) (until September 2022)
Aiste Petkeviciute (LFIN)
Associate researchers:
Julio Davila (until April 2020)
Rudy De Winne (LFIN)
The Project
Interest rates are a cornerstone of economics and finance. They are at the foundation of asset pricing and monetary policy, and more generally of all intertemporal choices made by market participants and institutions every day, with huge consequences for the economic activity and wellbeing of our societies. Until recently, it was assumed (mostly implicitly) that interest rates could only possibly be positive. Notwithstanding, in the wake of the 2008 global financial crisis, major central banks of developed countries have been brought to conduct rates policies that turned them negative. The consequences of such a paradigm shift are both potentially huge and not well understood yet. This research project aims at shedding light on these consequences, both from an academic and a policy viewpoint, following three intertwined research lines that bring together a multidisciplinary team of researchers working on Behavioral Finance, Macro Finance, and Quantitative Finance.
Figure 1: The path to negative interest rates
The research project turns around the changes —both for modelling and policy-making— brought in by the possibility of negative interest rates. More specifically, we investigate:
- how economic agents change their behaviors when interest rates are negative, and what the consequences of these changes are.
- what are the implications of negative interest rates for the current models in economics and finance, and what changes are needed consequently.
The project addresses these questions from the three different viewpoints of its behavioral finance, macro finance, and quantitative financial modelling dimensions. These are articulated in three research axes.
Figure 2: NEMO’s research fields and overlaps
THESIS:
- Aleksandar Todorovic
Essays on individual reactions to ultra-low and negative interest rates
Thesis advisor: Prof. Catherine D'Hondt
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Linqi Wang
Essays on Financial Econometrics and Quantitative Finance
Thesis advisors: Prof. Christian Hafner & Prof. Frédéric Vrins
PUBLICATIONS BY RESEARCH AXIS
BEHAVIORAL FINANCE
The behavioral axis of the project addresses questions regarding the consequences of negative interest rates (NIR) at the individual and contextual levels, respectively.
Publications:
MACRO FINANCE
The macro finance axis of the project focuses on two main (interrelated) areas: monetary policy and term structure of interest rates.
Publications:
QUANTITATIVE FINANCE
The quantitative finance axis of the project is centered around:
- the impact of negative interest rates (NIR) on risk attitudes and investment strategies and
- the non-linearities introduced by NIR in asset pricing.
Publications:
Mbaye, C., Sagna, A. and Vrins, F. (2021). “Computation of conditional survival probabilities under partial information via fast quantization”. Resubmitted to Journal of Computational Finance (minor revision).
WORKING PAPERS
Todorovic, A. (2021). “Negative interest rates and status quo bias”
Todorovic, A. (2021). “Negative interest rates and money illusion”
Lukmanova, E. and Davila, J. (2021), “Negative Rates”
Lukmanova, E. and Goncharenko, R. (2021). “Aren't Labor Markets Important for Monetary Policy?”
Lukmanova, E. and Rabitsch, K. (2021). “New Evidence on Monetary Transmission: Interest Rate versus Inflation Target Shocks”
Lukmanova, E. and Rabitsch, K. (2021). “Re-assessing International Effects of US Monetary Policy Shocks”
Lukmanova, E. and Wouters, R. (2021) “Inflation Expectations and Term Premium”
Message in a Bottle. Forecasting wine prices. by Bernardina Algieri, Leonardo Iania, Arturo Leccadito, Giulia Meloni, Submission requested by the Journal of Wine Economics
SEMINARS & EVENTS
- Internal Workshop on TEAMS – November 18, 2020
- “Risk or sure loss? Evidence of sure loss tolerance from three behavioral studies using NIR as a conceptual framework”
- “Negative interest rate and derivative pricing”
- “Bank intermediation and negative interest rates”
- “Zero lower bound or target return - which reference point prevails with negative interest rates?” & “Drivers of risk premia in a structural model with an extension at ZLB”
- Internal Workshop on TEAMS – February 10, 2022
- “Dynamic portfolio selection with sector-specific regularization”
- “Negative Interest Rates and Money Illusion”
- Seminar on "Natural rate chimera and bond price reality, by Wolfgang Lemke (ECB ) : https://www.nbb.be/en/events/natural-rate-chimera-and-bond-pricing-reality - May 05, 2022
- Society of Financial Econometrics (SoFiE) Financial Econometrics Summer School and workshop 2022 on "Methods for Empirical Asset Pricing with Large Data Sets" by Olivier Scaillet (University of Geneva and SFI) and Fabio Trojani (University of Geneva and SFI), see:https://calendar.time.ly/um7txyzq/stream;event=68728500;instance=20220620210000 - June 20-23, 2022
- Seminar on: "The Cyclicality of the Term Structure of Interest Rates", by Antonio Moreno (University of Navarra): https://www.nbb.be/en/events/cyclicality-term-structure-interest-rates - February 16, 2023
- Society of Financial Econometrics (SoFiE) Financial Econometrics Summer School and workshop 2023 on "Monetary Policy and the Yield Curve" by Glenn Rudebusch (Brooking Institute and NYU) and Michael Bauer (University of Hamburg), see: https://sites.google.com/view/sofieschoolbrussels/home - June 20-23, 2023