Year: 2015
Type: article
Abstract: This paper presents a regime-switching model of the yield curve with two states. One is a normal state, the other is a zero-bound state that represents the case when the monetary policy target rate is at its zero lower bound for a prolonged period. The model delivers estimates of the time-varying probability of exiting the zero-bound state, and it outperforms standard three- and four-factor term structure models as well as a shadow rate model at matching short-rate expectations and the compression in yield volatility near the zero lower bound.
DOI: 10.24148/wp2013-34
Authors: Federal Reserve Bank of San Francisco, Jens H. E. Christensen
Institutions: Federal Reserve, Federal Reserve Bank of San Francisco
Language: English
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W2147288076