Working Paper
Estimating Shadow-Rate Term Structure Models with Near-Zero Yields
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.
https://doi.org/10.24148/wp2013-07
Access Documents
File(s): File format is application/pdf http://www.frbsf.org/publications/economics/papers/2013/wp2013-07.pdf
Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2013-06-28
Number: 2013-07
Pages: 39 pages