Equilibrium Yield Curves and the Interest Rate Lower Bound"

Taisuke Nakata and Hiroatsu Tanaka
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Hiroatsu Tanaka: Federal Reserve Board

Review of Economic Dynamics, 2026, vol. 62

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. (Copyright: Elsevier)

Keywords: Term Structure of Interest Rates; Term Premiums; Effective Lower Bound; Forward Guidance; New Keynesian Model; Recursive Preferences (search for similar items in EconPapers)
JEL-codes: E12 E32 E43 E44 E52 G12 (search for similar items in EconPapers)
Date: 2026
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Working Paper: Equilibrium Yield Curves and the Interest Rate Lower Bound (2016)
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DOI: 10.1016/j.red.2026.101364

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