Equilibrium Yield Curves and the Interest Rate Lower Bound

Taisuke Nakata and Hiroatsu Tanaka
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Hiroatsu Tanaka: https://www.federalreserve.gov/econres/hiroatsu-tanaka.htm

No 2016-085r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We present a calibrated DSGE model with an occasionally binding effective lower bound (ELB) constraint on the short-term nominal rate that matches key features of the macroeconomy and the term structure of interest rates in the United States. We show that the ELB constraint induces state dependency in term premiums by affecting macroeconomic uncertainty and interest rate sensitivity to economic activity, typically lowering the absolute size of term premiums and generating distinct dynamics near the ELB. The central bank's forward guidance at the ELB lowers the expected short-rate path, but increases or decreases term premiums depending on whether demand or supply shocks are dominant.

Keywords: Effective Lower Bound; Forward Guidance; New Keynesian Model; recursive preferences; Term Premiums; Term Structure of Interest Rates; yield curves (search for similar items in EconPapers)
JEL-codes: E12 E32 E43 E44 E52 G12 (search for similar items in EconPapers)
Pages: 84
Date: 2016-10, Revised 2026-09-22
New Economics Papers: this item is included in nep-mac and nep-mon
Note: Revision
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Equilibrium Yield Curves and the Interest Rate Lower Bound" (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-85

DOI: 10.17016/FEDS.2016.085r1

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