Term structure estimation with survey data on interest rate forecasts

Don H. Kim and Athanasios Orphanides
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Don H. Kim: https://www.federalreserve.gov/econres/don-h-kim.htm

No 2005-48, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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 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: Interest rates; Economic forecasting; Econometric models (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fin, nep-for and nep-sea
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Citations: View citations in EconPapers (51)

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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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