Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249885 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2612
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We build a novel macro-finance model that combines a semi-structural macroeconomic module with arbitrage-free yield-curve dynamics. We estimate it for the United States and the euro area using a Bayesian approach and jointly infer the real equilibrium interest rate (r*), trend inflation (Û*), and term premia. Similar to Bauer and Rudebusch (2020, AER), Û* and r* constitute a time-varying trend for the nominal short-term rate in our model, rendering estimated term premia more stable than standard yield curve models operating with time-invariant means. In line with the literature, our r* estimates display a distinct decline over the last four decades.
Subjects: 
Natural rate of interest
r*
equilibrium real rate
arbitrage-free Nelson-Siegel termstructure model
term premia
unobserved components
Bayesian estimation
JEL: 
C11
C32
E43
G12
E44
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4865-4
Document Type: 
Working Paper

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