Unproductive debt
Credit and related interest income have historically been viewed as service and related payment for lending productively. However, in a highly collateralized and risk-averse...
How central banks can take nominal rates deeply negative
The popular view that nominal interest rates have a natural zero lower bound has become obsolete in modern financial systems. It may be more...
Bayesian Risk Forecasting
Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This simply reflects that large drawdowns are observed only rarely,...
The duration extraction effect
Under non-conventional monetary policy central banks influence financial markets through the “portfolio rebalancing channel”. The purchase of assets changes the structure of prices. A...
Tiered reserve systems
Negative monetary policy rates can undermine financial transmission, because they encourage cash hoarding and reduce the profitability of traditional banking. This danger increases with...
Signaling systemic risk
Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator tracks the vulnerability rather than the shocks (which are...
How to estimate risk in extreme market situations
Estimating portfolio risk in extreme situations means answering two questions: First, has the market entered an extreme state? Second, how are returns likely to...
Understanding China’s “financial policy”
In most developed countries macroeconomic management is the domain of separate fiscal and monetary policies. In China, the focus is on “financial policy”, a...
ECB policy framework in six basic points
The European Central Bank is one of the most powerful institutions in the world and is running a particularly complex policy framework. For macro...
How systemic financial risk is measured
Public institutions have developed a wide range of methods to track systemic financial risk. What most of them have in common is reliance on...
RECENT ARTICLES
A statistical learning workflow for macro trading strategies
Statistical learning for macro trading involves model training, model validation and learning method testing. A simple workflow determines form and parameters of trading...
The basics of low-risk strategies
Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can be based on price statistics, such as volatility and...
How loss aversion increases market volatility and predicts returns
Loss aversion means that people are more sensitive to losses than to gains. This asymmetry is backed by ample experimental evidence. Loss aversion is...