Term Structure Estimation with Survey Data on Interest Rate Forecasts
Don H. Kim and
Athanasios Orphanides ()
No 5341, CEPR Discussion Papers from C.E.P.R. Discussion Papers
The estimation of dynamic no-arbitrage term structure models with a flexible specification of the market price of risk is beset by a severe small-sample problem 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. The three-factor pure-Gaussian model thus estimated with the U.S. Treasury term structure for the 1990-2003 period generates a stable 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.
Keywords: Dynamic term structure models; expectations hypothesis; interest rate forecasts; survey data; term premia (search for similar items in EconPapers)
JEL-codes: E43 E47 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-for and nep-mac
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Journal Article: Term Structure Estimation with Survey Data on Interest Rate Forecasts (2012)
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)
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