Term Structure Estimation with Survey Data on Interest Rate Forecasts
Abstract
The estimation of dynamic no-arbitrage term structure models with a flexible specification of the market price of risk is beset by a severe small-sample problem arising from the highly persistent nature of interest rates. We propose using survey forecasts of a short-term interest rate as additional input to the estimation to overcome the problem. The three-factor pure-Gaussian model thus estimated with the U.S. Treasury term structure for the 1990-2003 period generates a stable estimate of the expected path of the short rate, reproduces the well-known stylized patterns in the expectations hypothesis tests, and captures some of the short-run variations in the survey forecast of the changes in longer-term interest rates.
Cite this
Don H. Kim, Athanasios Orphanides A (2005). Term Structure Estimation with Survey Data on Interest Rate Forecasts. Finance and Economics Discussion Series. https://doi.org/10.17016/feds.2005.48
@article{h2005term,
title = {Term Structure Estimation with Survey Data on Interest Rate Forecasts},
author = {Kim, Don H. and A, Athanasios Orphanides},
year = {2005},
journal = {Finance and Economics Discussion Series},
doi = {10.17016/feds.2005.48}
}Citations in this library
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