A shadow rate model with time-varying lower bound of interest rates

Arbeitspapier

Typically a constant – or zero – lower bound for interest rates is applied in shadow rate term structure models. However, euro area yield curve data suggest that a time-varying lower bound might be appropriate for the euro area. I show that this indeed is the case, i.e. a shadow rate model with time-varying lower bound outperforms the constant lower bound model in euro area data. I argue that the time-variation in the lower bound is related to the deposit facility rate and, thus, to monetary policy. This time-variation in the lower bound gives a new channel via which monetary policy may affect the yield curve in a shadow rate model. I show that the intensity of this channel depends on how tightly the lower bound restricts the yield curve, and I argue that this channel has recently become important for the euro area.

Angaben zum Objekt

• ISBN: 978-952-323-117-7
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Bank of Finland Research Discussion Papers ; No. 19/2016

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; Monetary Policy

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Kortela, Tomi
• Ereignis: Veröffentlichung
• (wer): Bank of Finland
• (wo): Helsinki
• (wann): 2016

Weitere Informationen

• Handle: http://hdl.handle.net/10419/212357
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ