Monetary policy expectations at the zero lower bound
Obtaining monetary policy expectations from the yield curve is difficult near the zero lower bound (ZLB). Standard dynamic term structure models, which ignore the ZLB, can be misleading. Shadow-rate models are better suited for this purpose, because they account for the distributional asymmetry in projected short rates induced by the ZLB. Besides providing better interest rate fit and forecasts, our shadow-rate models deliver estimates of the future monetary policy liftoff from the ZLB that are closer to survey expectations. We also document significant improvements for inference about monetary policy expectations when macroeconomic factors are included in the term structure model.
|Date of creation:||2013|
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Working Paper Series
2005-19, Federal Reserve Bank of San Francisco.
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2011-36, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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