Natural rate chimera and bond pricing reality
Claus Brand,
Gavin Goy and
Wolfgang Lemke
No 2612, Working Paper Series from European Central Bank
Abstract:
We build a novel macro-finance model that combines a semi-structural macroeconomic module with arbitrage-free yield-curve dynamics. We estimate it for the United States and the euro area using a Bayesian approach and jointly infer the real equilibrium interest rate (r*), trend inflation (π*), and term premia. Similar to Bauer and Rudebusch (2020, AER), π* and r* constitute a time-varying trend for the nominal short-term rate in our model, rendering estimated term premia more stable than standard yield curve models operating with time-invariant means. In line with the literature, our r* estimates display a distinct decline over the last four decades. JEL Classification: C11, C32, E43, G12, E44, E52
Keywords: arbitrage-free Nelson-Siegel term structure model; Bayesian estimation; equilibrium real rate; natural rate of interest; r*; term premia; unobserved components (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mac and nep-opm
Note: 92649
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2612~672f094742.en.pdf (application/pdf)
Related works:
Working Paper: Natural rate chimera and bond pricing reality (2020)
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:ecb:ecbwps:20212612
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().