Recent U.S. Treasury yields have been constrained to some extent by the zero lower bound (ZLB) on nominal interest rates. In modeling these yields, we compare the performance of a standard affine Gaussian dynamic term structure model (DTSM), which ignores the ZLB, and a shadow-rate DTSM, which...

Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of the monetary policy reaction function, in which the interest rate...

In August 2011, the Swiss National Bank engaged in unconventional monetary policy through an unprecedented expansion of bank reserves. As these actions did not involve any outright long-term asset purchases, this unique episode allows for novel insights on the transmission mechanism of central...

To support the economy, the Federal Reserve amassed a large portfolio of long-term bonds. We assess the Fed’s associated interest rate risk — including potential losses to its Treasury securities holdings and declines in remittances to the Treasury. Unlike past examinations of this interest...

Although it is generally recognized that the equilibrium real interest rate (ERR) varies over time, most recent work on policy analysis has been carried out under the assumption that this rate is constant. We show how this assumption can affect inferences about the conduct of policy in two...

Using a short-term interest rate as the monetary policy instrument can be problematic near its zero bound constraint. An alternative strategy is to use a long-term interest rate as the policy instrument. We find when Taylor-type policy rules are used to set the long rate in a standard New...

This paper examines a recent shift in the dynamics of the term structure and interest rate risk. We first use standard yield-spread regressions to document such a shift in the U.S. in the mid-1980s. Over the pre- and post-shift subsamples, we then estimate dynamic, affine, no-arbitrage models,...

The term premium on nominal long-term bonds in the standard dynamic stochastic general equilibrium (DSGE) model used in macroeconomics is far too small and stable relative to empirical measures obtained from the data--an example of the ''bond premium puzzle.'' However, in models of endowment...

Estimated monetary policy rules often appear to indicate a sluggish partial adjustment of the policy interest rate by the central bank. In fact, such evidence does not appear to be persuasive, since the illusion of monetary policy inertia may reflect spuriously omitted persistent influences on...

This paper examines the effects of deposit rate deregulation in Hong Kong on the market value of banks. The release of the Consumer Council's Report in 1994 recommending interest rate deregulation is found to produce negative abnormal returns, while the announcement in 1995 terminating the...