On the estimation of the natural yield curve

Jouchi Nakajima, Nao Sudo, Yoshihiko Hogen and Yasutaka Takizuka

No 753, Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This study discusses the estimation methodology of the natural yield curve, which is an extension of the natural rate of interest defined at a short-term interest rate to that defined for all maturities on a yield curve. To identify information about the latent factors forming the natural rate curve, the original estimation framework proposed by Imakubo et al. (2018), employs the pre-estimated potential growth rate, assuming that a change in the factors depends on a change in the potential growth rate. In contrast, this study examines an alternative approach that specifies that the levels of the factors depend on the potential growth rate. In an empirical analysis with recursive data updating, the differences in the resulting natural yield curve and its updated patterns between the two approaches are investigated.

Keywords: Natural yield curve; Natural rate of interest; Term structure (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 E58 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2023-12
New Economics Papers: this item is included in nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hituec:753

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