Estimating Shadow-Rate Term Structure Models with Near-Zero Yields

Jens Christensen and Glenn Rudebusch

No 2013-07, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Standard Gaussian term structure models have often been criticized for not ruling out negative nominal interest rates, but this flaw has been especially conspicuous with interest rates near zero in many countries. We provide a tractable means to estimate an alternative Gaussian shadow-rate dynamic term structure model that enforces the zero lower bound on bond yields. We illustrate this model by estimating one-, two-, and three-factor shadow-rate models on a sample of positive and near-zero Japanese bond yields. We find that the level of the shadow rate is sensitive to model fit and specification, including the number of factors employed.

Keywords: Interest rates; Econometric models (search for similar items in EconPapers)
Pages: 39 pages
Date: 2013-06-28
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Estimating Shadow-Rate Term Structure Models with Near-Zero Yields (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2013-07

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DOI: 10.24148/wp2013-07

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