Term Structure Estimation with Survey Data on Interest Rate Forecasts

Athanasios Orphanides and Don H. Kim

No 5341, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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; Survey data; Interest rate forecasts; Term premia; Expectations hypothesis (search for similar items in EconPapers)
JEL-codes: E43 E47 G12 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-fin, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (96)

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Related works:
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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