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Faster solutions for Black zero lower bound term structure models

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  • Leo Krippner

Abstract

The Black framework offers a theoretically appealing way to model the term structure and gauge the stance of monetary policy when the zero lower bound of interest rates becomes constraining, but it is time consuming to apply using standard numerical methods. I outline a faster Monte Carlo simulation method for Black implementions, illustrate its performance for a one factor model, and then discuss the ready extension to models with multiple factors.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2013-09/66_krippner.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-66.

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Length: 9 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-66

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Keywords: Black framework; zero lower bound; shadow short rate; term structure model;

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References

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  1. Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, vol. 50(5), pages 1371-76, December.
  2. Michael D. Bauer & Glenn D. Rudebusch, 2013. "Monetary policy expectations at the zero lower bound," Working Paper Series 2013-18, Federal Reserve Bank of San Francisco.
  3. repec:fip:fedlps:y:2012:i:nov8 is not listed on IDEAS
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Cited by:
  1. Leo Krippner, 2014. "Measuring the stance of monetary policy in conventional and unconventional environments," CAMA Working Papers 2014-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Leo Krippner, 2013. "Efficient Jacobian evaluations for estimating zero lower bound term structure models," CAMA Working Papers 2013-77, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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