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With a little help from my friends: survey-based derivation of euro area short rate expectations at the effective lower bound

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Authors and Corporations: Geiger, Felix (Author), Schupp, Fabian (Author)
Other Authors: Schupp, Fabian [Author]
Type of Resource: E-Book
Language: English
published:
Frankfurt am Main Deutsche Bundesbank [2018]
Series: Deutsche Bundesbank: Discussion paper ; no 2018, 27
Source: Verbunddaten SWB
Lizenzfreie Online-Ressourcen
ISBN: 9783957294814
Description
Summary: The estimation of dynamic term structure models (DTSMs) turns out to be challenging in the presence of a small sample. It is exacerbated if the sample is characterized by a prolonged period of low interest rates near a time-varying effective lower bound. These challenges all weigh heavily when estimating a DTSM for the euro area OIS yield curve. Against this background, we propose a shadow-rate term structure model (SRTSM) that includes a time-varying effective lower bound and accounts for the spread between the policy and short-term OIS rate. It also allows for future changes in the effective lower bound and incorporates survey information. The model allows to adequately assess short-term monetary policy rate expectations and it generates far-distant rate expectations that are correlated with an estimated equilibrium nominal short rate derived from a macroeconomic model set-up. Our results also highlight the signaling channel of non-standard monetary policy shocks in the run-up to asset purchases identified based on a non-linear high-frequency external instrument approach. Our model outperforms DTSM specifications without above modeling features from a statistical and economic perspective. We confirm our findings employing a Monte Carlo simulation.
Physical Description: 1 Online-Ressource (circa 49 Seiten); Illustrationen
ISBN: 9783957294814