Research

Abstract: Mexico has the largest amount of foreign owned government bonds across all emerging markets. This paper quantifies the impact of an increase in share of foreign owned Mexican government bonds on three aspects of the yield curve; yield, spread and transmission of shocks along the curve. The paper runs SVARs to (i) measure impulse response of shocks in the short term yield on long term yields and (ii) to measure impulse response of shocks in the overnight rate to short term yields. It finds that larger foreign ownership share is associated with improved response of long term yields to shocks in the short term yields. Further, response of short term yields to shocks in the overnight rate is not impacted by changes in share of foreign owned bonds. Using US interest rates and US economic activity to instrument for changes in the level of foreign ownership of Mexican bonds, the paper finds that an increase in foreign ownership of bonds does not significantly impact the yields or spreads. However, point estimates show a pattern of short tem yields increasing and long term yields decreasing in response to increased share of foreign ownership in the Mexican government bond market.

Abstract: The Federal Reserve Board started a strategy review at the beginning of 2025 and intends to complete by late summer of 2025. After its only previous review, the Federal Open Market Committee adopted a far-reaching Revised Statement on Longer-Run Goals and Monetary Policy Strategy in August 2020. We analyze and develop policy rules that are either in accord with the original 2012 statement or inspired by the revised 2020 statement and use the rules to evaluate monetary policy using the Federal Reserve Board/United States model. We evaluate policy rules categorized by traditional, shortfalls, Asymmetric Coefficient Inflation Targeting, and Asymmetric Target Inflation Targeting versions of non-inertial and inertial Taylor and balanced approach rules. Economic performance is better with balanced approach rules than with Taylor rules, worse with shortfalls rules than with traditional rules, better with inertial rules than with non-inertial rules, and better with the two asymmetric inflation targeting rules than with traditional rules. 

Abstract: The Reserve Bank of India (RBI) started a monetary policy in December 2019 called Special OMOs. The RBI has conducted 24 such Special OMO auctions between December 2019 and May 2021 with the objective of flattening the yield curve. This paper uses event studies and intervention analysis and finds that Special OMO announcements reduced the slope of the Indian government bond yield curve by 79.8 bps from December 2019 until May 2021. It is also found that this change in slope is driven by changes in the short end of the yield curve combined with no change at the long end. This is explained theoretically by combining Market Segmentation hypothesis and Euler equations. Further analysis of individual announcements show that only a few of the Special OMO announcements resulted in significant changes in the yields and yield curve slope.