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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

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; 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
Date: 2005-11
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Journal Article: Term Structure Estimation with Survey Data on Interest Rate Forecasts (2012) Downloads
Working Paper: Term structure estimation with survey data on interest rate forecasts (2005) Downloads
Working Paper: Term Structure Estimation with Survey Data on Interest Rate Forecasts (2005)
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