Working Paper
Computing arbitrage-free yields in multi-factor Gaussian shadow-rate term structure models
Priebsch, Marcel A. (2013)
This paper develops a method to approximate arbitrage-free bond yields within a term structure model in which the short rate follows a Gaussian process censored at zero (a "shadow-rate model" as proposed by Black, 1995). The censoring ensures that model-implied yields are constrained to be positive, but it also introduces non-linearity that renders standard bond pricing formulas inapplicable. In particular, yields are not linear functions of the underlying state vector as they are in affine term structure models (see Piazzesi, 2010). Existing approaches towards computing yields in ...
Finance and Economics Discussion Series , Paper 2013-63

Working Paper
Are Shadow Rate Models of the Treasury Yield Curve Structurally Stable?
Kim, Don H.; Priebsch, Marcel A. (2020-08-20)
We examine the structural stability of Gaussian shadow rate term structure models of Treasury yields over a period that includes the time during which the U.S. policy rate was at its effective lower bound. After a conceptual discussion of several potential sources of a structural break in the context of the shadow rate model, we document various pieces of evidence for structural instability based on predictive tests and Lagrange multiplier tests, as well as with separate estimations of the pre-ELB and post-ELB subsamples. In order to overcome the difficulties associated with the latent-factor ...
Finance and Economics Discussion Series , Paper 2020-061

Discussion Paper
A Shadow Rate Model of Intermediate-Term Policy Rate Expectations
Priebsch, Marcel A. (2017-10-04)
This note introduces a shadow rate term structure model based on OIS rates and surveys to quantify federal funds rate expectations and term premiums over horizons ranging from one month to five years. The model implies that term premiums vary over time and can be substantial in magnitude, even at relatively short horizons.
FEDS Notes , Paper 2017-10-04-1

Discussion Paper
A New Way to Visualize the Evolution of Monetary Policy Expectations
Priebsch, Marcel A. (2019-09-20)
Using information from financial market quotes and surveys, this article analyzes the evolution from January to July 2019 of probabilities attached to different policy rate outcomes using "probability simplex" diagrams.
FEDS Notes , Paper 2019-09-20-2