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...

This note introduces a shadow rate term structure model based on OIS rates and surveys to quantify federal funds rate expectations and term premiums over horizons ranging from one month to five years. The model implies that term premiums vary over time and can be substantial in magnitude, even...

The present work deals with a frequently detected failure of the uncovered interest rate parity (UIP) - the absence of bivariate cointegration between domestic and foreign interest rates. We explain non-stationarity of the interest differential via central bank reactions to exchange rate...