"   A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt"

Christensen, Jens H. E.; Rudebusch, Glenn D.

doi:10.24148/wp2017-07

Cited by 46 publications

(46 citation statements)

References 29 publications

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“…Figure 6 shows estimates of the natural real interest rate for 1998 to 2017 from Christensen and Rudebusch (2017).5 Consistent with other estimates in the literature, measured r * reached historically low levels in recent years and does not show signs of moving back to previously normal levels despite the fact that the U.S. economy has now fully recovered from the Great Therefore, it is likely that long-term influences are holding the natural rate of interest down. Third, many possible explanations for low r * , not only in the United States but internationally, reflect highly persistent forces affecting the global supply and demand for savings.…”

Section: The Decline In the Natural Rate Of Interestsupporting

confidence: 74%

What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices

Mertens¹,

Williams²

2020

ERWP

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This paper analyzes the effects of the lower bound for interest rates on the distributions of expectations for future inflation and interest rates. We use a stylized model economy where the policy instrument is subject to a lower bound to motivate the empirical analysis. Two equilibria emerge: In the "target equilibrium," policy is unconstrained most or all of the time, whereas in the "liquidity trap equilibrium," policy is mostly or always constrained. We use options data on future interest rates and inflation to study whether the decrease in the natural rate of interest leads to forecast densities consistent with the theoretical model. We develop a lower bound indicator that captures the effects of the lower bound on the distribution of interest rates. Qualitatively, we find that evidence is largely consistent with the theoretical predictions in the target equilibrium and find no evidence in favor of the liquidity trap equilibrium. Quantitatively, while the lower bound has a sizable effect on the distribution of future interest rates, its impact on forecast densities for inflation is relatively modest. JEL Classification System: E52 * Federal Reserve Bank of San Francisco,

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Section: The Decline In the Natural Rate Of Interestsupporting

confidence: 74%

What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices

Mertens¹,

Williams²

2020

ERWP

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“…2 See Laubach and Williams (2016) as well as Christensen and Rudebusch (2019) for recent research into of this magnitude are likely tolerable in most calculations for such long-term interest rate risks. 4…”

Section: Introductionmentioning

confidence: 99%

Extrapolating Long-Maturity Bond Yields for Financial Risk Measurement

Christensen¹,

López²,

Mussche³

2019

ERWP

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Insurance companies and pension funds have liabilities far into the future and typically well beyond the longest maturity bonds trading in fixed-income markets. Such longlived liabilities still need to be discounted, and yield curve extrapolations based on the information in observed yields can be used. We use dynamic Nelson-Siegel (DNS) yield curve models for extrapolating risk-free yield curves for Switzerland, Canada, France, and the U.S. We find slight biases in extrapolated long bond yields of a few basis points. In addition, the DNS model allows the generation of useful financial risk metrics, such as ranges of possible yield outcomes over projection horizons commonly used for stress-testing purposes. Therefore, we recommend using DNS models as a simple tool for generating extrapolated yields for long-term interest rate risk management.JEL Classification: E43, E47, G12, G22, G28

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“…3 Other recent work stressing the role of demographics in the movements of interest rates includes Aksoy et al (2015), Favero et al (2016), Carvalho et al (2016), Gagnon et al (2016), and Ferrero et al (2017). 4 Recent work estimating variants of r * with data from the United States includes Justiniano and Primiceri (2010), Barsky et al (2014), Curdia et al (2015), Kiley (2015), Lubik and Matthes (2015), Pescatori and Turunen (2015), Christensen and Rudebusch (2017), Crump et al (2016), Johannsen and Mertens (2016), and Koenig and Armen (2017). Yellen (2015) and Williams (2018) discuss its monetary policy implications.…”

Section: Introductionmentioning

confidence: 99%

Global Trends in Interest Rates

Negro¹,

Giannone²,

Giannoni³

et al. 2018

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The trend in the world real interest rate for safe and liquid assets fluctuated close to 2 percent for more than a century, but has dropped significantly over the past three decades. This decline has been common among advanced economies, as trends in real interest rates across countries have converged over this period. It was driven by an increase in the convenience yield for safety and liquidity and by lower global economic growth.

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" A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt"

Cited by 46 publications

References 29 publications

What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices

What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices

Extrapolating Long-Maturity Bond Yields for Financial Risk Measurement

Global Trends in Interest Rates

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