Browsing by Author "Filonzi, Antonio"
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- Swap market volatility and future macroeconomic risk : an analysis of predictive contentPublication . Filonzi, Antonio; Soares, CarlaThis study examines the relationship between swap market volatility and macroeconomic uncertainty across USD, EUR, and JPY markets, exploring the predictive content that swap volatility may hold for future macro risk. Macroeconomic uncertainty is proxied using market-based, news-based, and model-based measures, while swap volatility is captured through three approaches: GARCH-based conditional volatility of swap rate changes, its low-frequency component extracted via spline fitting and swaption-implied volatility. Results reveal strong associations between swap volatility and macroeconomic risk, with these links intensifying in recent years. Granger causality tests confirm strong reverse causality and two-way feedback dynamics, with macro shocks often driving swap volatility. Forecasting evaluations highlights the limits of prediction: swap volatilities improve model fit in-sample, while out-of-sample gains are modest given the persistence of macro uncertainty. Still, even small improvements matter, showing that swap volatility is not noise but a valuable reflection of market expectations about future conditions. The broader contribution is clear: swap-based volatilities are not stable and consistent forecasters, but they are highly effective mirrors of uncertainty. Their continuous feedback with the macroeconomy makes them essential to consider in policymaking, trading, and research.