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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References listed on IDEAS
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- Leo Krippner, 2011.
"Modifying Gaussian term structure models when interest rates are near the zero lower bound,"
CAMA Working Papers
2011-36, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Leo Krippner, 2012. "Modifying Gaussian term structure models when interest rates are near the zero lower bound," Reserve Bank of New Zealand Discussion Paper Series DP2012/02, Reserve Bank of New Zealand.
- Glenn D. Rudebusch, 2005.
"Monetary policy inertia: fact or fiction?,"
Working Paper Series
2005-19, Federal Reserve Bank of San Francisco.
- Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, vol. 50(5), pages 1371-1376, December.
- Michael D. Bauer & Glenn D. Rudebusch & Jing Cynthia Wu, 2012. "Correcting Estimation Bias in Dynamic Term Structure Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(3), pages 454-467, April.
- Joslin, Scott & Le, Anh & Singleton, Kenneth J., 2013. "Why Gaussian macro-finance term structure models are (nearly) unconstrained factor-VARs," Journal of Financial Economics, Elsevier, vol. 109(3), pages 604-622.
- Yoichi Ueno & Naohiko Baba & Yuji Sakurai, 2006. "The Use of the Black Model of Interest Rates as Options for Monitoring the JGB Market Expectations," Bank of Japan Working Paper Series 06-E-15, Bank of Japan.
- Hibiki Ichiue & Yoichi Ueno, 2007. "Equilibrium Interest Rate and the Yield Curve in a Low Interest Rate Environment," Bank of Japan Working Paper Series 07-E-18, Bank of Japan.
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