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Revisiting Shadow Short-term Interest Rate Models: Evidence from the Ultra-Low Interest Rate Environment in Japan

Author

Listed:
  • Hiroyuki Oi

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: hiroyuki.ooi@boj.or.jp))

  • Shigenori Shiratsuka

    (Professor, Faculty of Economics, Keio University (E-mail: shigenori.shiratsuka@keio.jp))

  • Shunichi Yoneyama

    (Director, Institute for Monetary and Economic Studies (currently, Research and Statistics Department), Bank of Japan (E-mail: shunichi.yoneyama@boj.or.jp))

Abstract

Shadow short-term interest rate (SSR) models are expected to provide effective monetary policy indicators under the effective lower bound (ELB) constraint on nominal interest rates. This paper revisits the SSR models using yield curve data from the prolonged ultra-low interest rate environment in Japan. Specifically, this paper compares the various specifications of the SSR models based on the Nelson-Siegel model by focusing on a trade-off between estimation performance and theoretical consistency. This paper highlights the importance of evaluating monetary policy easing effects using the entire yield curve fluctuations, rather than relying solely on SSR estimates, especially in the ultra-low interest rate environment in Japan.

Suggested Citation

  • Hiroyuki Oi & Shigenori Shiratsuka & Shunichi Yoneyama, 2026. "Revisiting Shadow Short-term Interest Rate Models: Evidence from the Ultra-Low Interest Rate Environment in Japan," IMES Discussion Paper Series 26-E-06, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:26-e-06
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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