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Unconventional Monetary Policies and the Yield Curve: Estimating Non-Affine Term Structure Models with Unspanned Macro Risk by Factor Extraction

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  • Adam Goliński
  • Peter Spencer

Abstract

We show how the Joslin, Singleton, and Zhu (2011) factor extraction approach to estimating the Gaussian term structure model can be modified to handle the interest rate lower bound without the approximations used in other approaches. This drastically reduces the computation time and produces more robust estimates of the lower bound parameter and the shadow rate. It makes feasible the extensive specification search necessary to allow for unspanned factors as in Joslin, Priebsch, and Singleton (2014), allowing the term structure model to be used to better assess the effects of policy on the term premium and market expectations. (JEL G12, C13, E43)

Suggested Citation

  • Adam Goliński & Peter Spencer, 2024. "Unconventional Monetary Policies and the Yield Curve: Estimating Non-Affine Term Structure Models with Unspanned Macro Risk by Factor Extraction," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 14(1), pages 119-152.
    • Handle: RePEc:oup:rasset:v:14:y:2024:i:1:p:119-152.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raad011
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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