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The Qatar Centre for Global Banking & Finance welcomes Dimitri Vayanos from the London School of Economics to present this virtual seminar on 'A Preferred-Habitat Model of Term Premia, Exchange Rates and Monetary Policy Spillovers'.
Paper Abstract
We propose an integrated preferred-habitat model of bond and currency markets across two countries. Prices are determined by arbitrageurs trading with investors with preferences for specific assets. Risk premia vary over time in response to shocks to short rates and to bond and currency demand. This variation generates empirically documented violations of Expectations Hypothesis and Uncovered Interest Parity. Large-scale asset purchases in one country cause that country’s currency to depreciate, bond yields in that country to drop, and yields in the other country to drop by a smaller amount. A short-rate cut in one country has the same qualitative effects, although our estimated model reveals that the spillovers to the other country’s term structure are significantly smaller.
About the Speaker
Dimitri Vayanos is Professor of Finance at the London School of Economics, where he also directs the Financial Markets Group and the Paul Woolley Centre for the Study of Capital Market Dysfunctionality. He is a Fellow of the British Academy, a former Director and Managing Editor of the Review of Economic Studies, a Research Fellow at CEPR and a former Director of its Financial Economics program, a Research Associate at NBER, and a former Director of the American Finance Association.
His research, published in leading economics and finance journals, such as Econometrica, the Journal of Finance, the Journal of Financial Economics, the Quarterly Journal of Economics, the Review of Economic Studies, and the Review of Financial Studies, focuses on financial markets, and especially on what drives market liquidity, why asset prices can differ from assets’ fundamental values, why bubbles and crises can occur, and what are appropriate regulatory and policy responses.
He is a co-editor of the book “Beyond Austerity: Reforming the Greek Economy”, a member of the Pissarides Committee, tasked by Greece’s PM to develop a growth plan for Greece, and a co-author of the European Safe Bonds (ESBies) proposal.
At this event
Director of the Qatar Centre for Global Banking & Finance
Advisor, Qatar Centre for Global Banking & Finance
Deputy Director of the Qatar Centre for Global Banking & Finance