Term Structure Estimation with Survey Data on Interest Rate Forecasts

Don H. Kim and Athanasios Orphanides

Journal of Financial and Quantitative Analysis, 2012, vol. 47, issue 1, 241-272

Abstract: The estimation of dynamic no-arbitrage term structure models with a flexible specification of the market price of risk is beset by severe small-sample problems arising from the highly persistent nature of interest rates. We propose using survey forecasts of a short-term interest rate as an additional input to the estimation to overcome the problem. To illustrate the methodology, we estimate the 3-factor affine-Gaussian model with U.S. Treasury yields data and demonstrate that incorporating information from survey forecasts mitigates the small-sample problem. The model thus estimated for the 1990–2003 sample generates a stable and sensible estimate of the expected path of the short rate, reproduces the well-known stylized patterns in the expectations hypothesis tests, and captures some of the short-run variations in the survey forecast of the changes in longer-term interest rates.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (160)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Term Structure Estimation with Survey Data on Interest Rate Forecasts (2005)
Working Paper: Term structure estimation with survey data on interest rate forecasts (2005)
Working Paper: Term Structure Estimation with Survey Data on Interest Rate Forecasts (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:47:y:2012:i:01:p:241-272_00

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().