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Creator: Martin, Vance, 1955- and Pagan, Adrian R. Series: Simulation-based inference in econometrics Abstract:
Procedures for computing the parameters of a broad class of multifactor continuous time models of the term structure based on indirect estimation methods are proposed. The approach consists of simulating the unknown factors from a set of stochastic differential equations which are used to compute synthetic bond yields. The bond yields are calibrated with actual bond yields via an auxiliary model. The approach circumvents many of the difficulties associated with direct estimation of this class of models using maximum likelihood. In particular, the paper addresses the identification issues arising from singularities in the yields and spreads which tend not to be recognised in existing estimation procedures and thereby overcome potential misspecification problems inherrent in direct methods. Indirect estimates of single and multifactor models are computed and compared with the estimates based on existing estimation procedures.
Palavra-chave: Continous time models, Indirect estimation, Multifactor models, Term structure, Testing factor models, Stochastic differential equations, and Singularities Sujeito: C30 - Multiple or simultaneous equation models - General, C51 - Econometric modeling - Model construction and estimation, and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
Creator: Adão, Bernardino, Correia, Isabel, and Teles, Pedro Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 680 Abstract:
We show that short and long nominal interest rates are independent monetary policy instruments. The pegging of both helps solving the problem of multiplicity that arises when only short rates are used as the instrument of policy. A peg of the nominal returns on assets of different maturities is equivalent to a peg of state-contingent interest rates. These are the rates that should be targeted in order to implement unique equilibria. At the zero bound, while it is still possible to target state-contingent interest rates, that is no longer equivalent to the target of the term structure.
Palavra-chave: Sticky prices, Maturities, Long rates, Monetary policy instruments, Term structure, Short rates, Monetary policy, and Multiplicity of equilibria Sujeito: E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General, E40 - Money and Interest Rates: General, and E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)