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A Time Series Model of Interest Rates With the Effective Lower Bound

Benjamin K. Johannsen and Elmar Mertens ()

No 2016-033, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Modeling interest rates over samples that include the Great Recession requires taking stock of the effective lower bound (ELB) on nominal interest rates. We propose a flexible time? series approach which includes a ?shadow rate??a notional rate that is less than the ELB during the period in which the bound is binding?without imposing no?arbitrage assumptions.{{p}}The approach allows us to estimate the behavior of trend real rates as well as expected future interest rates in recent years.

Keywords: Bayesian Econometrics; Effective Lower Bound; Shadow Rate; State-Space Model; Term Structure of Interest Rates (search for similar items in EconPapers)
JEL-codes: C32 C34 C53 E43 E47 (search for similar items in EconPapers)
Date: 2016-04-04
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-mac, nep-mon and nep-pke
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http://www.federalreserve.gov/econresdata/feds/2016/files/2016033pap.pdf (application/pdf)

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Working Paper: A time series model of interest rates with the effective lower bound (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-33

DOI: 10.17016/FEDS.2016.033

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