Term Structure Estimation with Survey Data on Interest Rate Forecasts

Posted: 2 Jul 2021

See all articles by Don H. Kim

Don H. Kim

Board of Governors of the Federal Reserve System

Athanasios Orphanides

affiliation not provided to SSRN

Multiple version iconThere are 3 versions of this paper

Date Written: 2005

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.

Suggested Citation

Kim, Don H. and Orphanides, Athanasios, Term Structure Estimation with Survey Data on Interest Rate Forecasts (2005). FEDS Working Paper No. 2005-48, Available at SSRN: https://ssrn.com/abstract=3877805

Don H. Kim (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Athanasios Orphanides

affiliation not provided to SSRN

No Address Available

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