Research

Nancy Hammond, PhD. Monetary Theory and Finance, University of Chicago Economics

Research interests

Working papers

Work in progress

 

RESEARCH STATEMENT

My research interests include macro finance, interactions of finance with the macroeconomy, and public finance.  My economics PhD program specialization in money and Bonking has inspired and driven my interests in monetary policy, central bank influence on financial markets, and the transmission of policy to the broader economy. My recent research paper isolates the contribution of inflation and real activity to risk premia of monthly returns on two to five year US Treasury bonds.   My dissertation research examined the role of education in the British demographic transition and the impact on parents’ preference of child quality over family size.My current work with daily reference rates looks at the effect of Federal Reserve policy on overnight reference rates and the Fed preference for offsetting volatility in the Federal Funds rate

DISSERTATION

“Improved child mortality and the decline in fertility in Britain 1850-2005”

The British demographic transition to lower death rates and birth rates during the Industrial Revolution followed 140 years of high population growth. Although per capita income increased steadily during the transition to lower birth and child mortality rates between 1876 and 1918, birth rates per 1000 women age 15-44 declined four times more than the probability a child would survive to her 5th birthday. Between 1850 and 1918, birth rates fell 2.2 percent for a one percent increase in survival from birth to age 5.  During the same period, birth rates increased 0.2 percent with every percent increase in the primary enrollment ratio, the ratio of school age children enrolled in primary education. However, in the quarter century before the start of the transition, birth rates declined .1 percent with increases in the primary enrollment ratio but increased .04 percent during the transition. Although the school enrollment ratio doubled during the transition, the really dramatic increases in literacy and primary school enrollment occurred before 1876 when the student age population enrolled in primary school increased almost six fold from 6.9 percent in 1850 to 46.4 percent in 1876, at a time when improvement in child survival was negligible. 

WORKING PAPERS

My current work focus is the market microstructure of overnight policy and wholesale money market rates, Federal Reserve preferences for volatility when managing the Fed Funds rate within the FOMC target range, and transmission of Fed policy and administered rates to money market rates. 

“Macroeconomic effects on US Treasury bond risk premia 1969-2013”

This paper compares macroeconomic and yield curve factor estimates of excess returns from 1969 to 2013. I interpret how macroeconomic factors shape unobserved yield curve factors that drive the risk premia of US Treasury bonds. Regressing macroeconomic factors on yield curve factors reveals the close negative association of inflation and slope. Yield curve factors slope and curvature load negatively on inflation and real activity, capturing growth like behavior. Both macroeconomic factors together outperform yield curve factor predictions of excess returns. Jointly level-slope, and slope- curvature are important for estimating excess returns beyond the contribution of macroeconomic factors.  

Excess bond returns, annual holding period returns in excess of the one year yield, and the forward spot spread widen from recession peak, then decline at the trough. These premia depend on the speed of mean reversion in the short rate. I find the dynamics of mean reversion in the short rate have changed over time. During the earlier NBER dated recessions before 1990Q1, the one-year yield rises before falling from recession peak to trough. In the last three recessionary episodes 1990Q1, 2001Q3, and 2007Q4, the one-year yield declines steadily from the first quarter after the recession peak to the recession trough. 

"Impact of maturity structure of US debt on bond premia"

The findings from the literature on cyclical behavior of excess returns on US Treasury bond returns that returns are low in good times, high during recessions are inconsistent with predictions of the optimal debt management literature. Active debt policy can offset surprises in inflation or innovations in fiscal policy with monetary policy that changes the amount of debt and the maturity structure of debt.  Long term debt sales can provide fiscal insurance against the need to adjust taxes or expenditures but also trade current for future inflation. By lowering current price and raising current yields, sales of long-term debt both postpone current inflation and allow the government to delay changes in future surpluses. I show  how the government’s debt maturity structure responds to macroeconomic surprises and fiscal innovations in tax policy or expenditures.

“Early education in Britain a precursor of the demographic transition?”

This work examines the effect of child mortality and universal education on diffusion of learning and economic growth. Education and literacy expanded long before Britain’s demographic transition. I develop a model of knowledge diffusion and economic growth when age distributions are a function of child survival rates and education. A six-fold increase in the share of school age children enrolled in primary school from 1841 to 1876 preceded the large secular decline in birth and death rates in Britain from 1876 to 1918. From 1850 to 1876, birth rates rose but declined with the school enrollment ratio, a period when the school enrollment ratio increased six fold and changes in child mortality were negligible. The elasticity of birth rates was to school enrollment was positive during the transition when birth rates fell with improved child mortality. Did increased chances that births would survive to childhood motivate parents to invest in their children’s future?  Were education and improved mortality complements during the transition, investing in child quality while reducing family size?

“Inflation”

Changes in dynamics of inflation and monetary policy impact estimates of expected inflation, future interest rates, discount rates, and the value of public debt.  I compare two approaches to estimating expected inflation, from marginal densities of inflation from options and unexpected inflation from fiscal shocks to government debt. The paper will compare inflation paths generated by each method with a simple model macroeconomic model with rational expectations, the Fisher equation and alternative monetary policy rules. I will simulate paths of the interest rate with fiscal and monetary policy shocks. These will be benchmarked against consumer surveys and expectations derived from financial markets.

"Bond metrics"  

R code estimated prices and yields of zero coupon and coupon bond and calculated duration for coupon bonds

"United Arab Emirates macroeconomic report"