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Estimating Term Premia at the Zero Bound: An Analysis of Japanese, US, and UK Yields

Author

Listed:
  • Hibiki Ichiue

    (Bank of Japan)

  • Yoichi Ueno

    (Bank of Japan)

Abstract

This paper estimates an affine term structure model (ATSM) and a shadow rate model (SRM) using Japanese, US, and UK data until March 2013. These models produce very different results, which are attributable to the ATSM's neglect of the zero lower bound (ZLB). The 10-year term premium estimated by the ATSM occasionally deviates from that estimated by the SRM by around 2 percentage points, and the deviation has recently widened in the US and the UK. The ATSM consistently overestimates the long-run level of the short rate, which appears to contribute to the tendency to underestimate the term premium.

Suggested Citation

  • Hibiki Ichiue & Yoichi Ueno, 2013. "Estimating Term Premia at the Zero Bound: An Analysis of Japanese, US, and UK Yields," Bank of Japan Working Paper Series 13-E-8, Bank of Japan.
  • Handle: RePEc:boj:bojwps:13-e-8
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    More about this item

    Keywords

    Affine term structure model; Shadow rate model; Zero lower bound; Term premium; Monetary policy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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