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A Survey-Based Shifting-Endpoint Dynamic Term Structure Model of Interest Rates: Working Paper 2025-03

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  • Michael McGrane

Abstract

In this paper, I present a dynamic term structure model of interest rates that fea- tures a shifting endpoint and incorporates survey forecasts of interest rates to sharpen the model’s implied forecasts and estimate trend interest rates. I present a new esti- mate of trend interest rates from the model as well as the model’s estimates of term premiums. I conduct an out-of-sample forecast analysis with the model and find that it significantly outperforms a standard dynamic term structure model with no shifting endpoint and only slightly underperforms a random walk model.

Suggested Citation

  • Michael McGrane, 2025. "A Survey-Based Shifting-Endpoint Dynamic Term Structure Model of Interest Rates: Working Paper 2025-03," Working Papers 60888, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:60888
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    File URL: https://www.cbo.gov/system/files/2025-08/60888-Interest-Rates.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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