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Monetary Policy Expectations at the Zero Lower Bound : Estimated Shadow Rates, Working Paper 2013-18

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Monetary Policy Expectations at the Zero Lower Bound : Estimated Shadow Rates, Working Paper 2013-18

DATE: May 21, 2015

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ABSTRACT: 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.

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Federal Reserve Bank of San Francisco. "Monetary Policy Expectations at the Zero Lower Bound : Estimated Shadow Rates, Working Paper 2013-18" in Working Papers (Federal Reserve Bank of San Francisco) (May 21, 2015). https://fraser.stlouisfed.org/title/7038/item/639412/content/csv/frbsf_wp2013-18_shadowrates, accessed on July 8, 2025.

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EDITION: Revised

SUBJECTS: THEMES: CLASSIFICATION:
  • jel: E43
  • jel: E44
  • jel: E52
IDENTIFIER:
  • doi: 10.24148/wp2013-18
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