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Working Paper
Equilibrium Yield Curves and the Interest Rate Lower Bound
We present a calibrated DSGE model with an occasionally binding effective lower bound (ELB) constraint on the short-term nominal rate that matches key features of the macroeconomy and the term structure of interest rates in the United States. We show that the ELB constraint induces state dependency in term premiums by affecting macroeconomic uncertainty and interest rate sensitivity to economic activity, typically lowering the absolute size of term premiums and generating distinct dynamics near the ELB. The central bank's forward guidance at the ELB lowers the expected short-rate path, but ...
Working Paper
Equilibrium Yield Curves and the Interest Rate Lower Bound
We study the term structure of default-free interest rates in a sticky-price model with an occasionally binding effective lower bound (ELB) constraint on interest rates and recursive preferences. The ELB constraint induces state-dependency in the dynamics of term premiums by affecting macroeconomic uncertainty and interest-rate sensitivity to economic activities. In a model calibrated to match key features of the aggregate economy and term structure dynamics in the U.S. above and at the ELB, we find that the ELB constraint typically lowers the absolute size of term premiums at the ELB and ...