Using Proxies for the Short Rate: When are Three Months Like an Instant?

Chapman, David A.; Long, J. Bradford De; Pearson, Neil D.

doi:10.1093/rfs/12.4.763

Cited by 85 publications

(54 citation statements)

References 17 publications

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“…Piazzesi (2005) and He (2001) therefore argue to use the target rate set by the Federal Reserve as "cleaner" measure of the short rate. Chapman et al (1999) argue that short T-bill rates are good short-rate proxies, at least when used in one-factor affine models. Duffee (1996), however, points out that very short T-bill rates behave differently from other short rates.…”

Section: Short Yieldsmentioning

confidence: 99%

Affine Term Structure Models

Piazzesi

2010

Handbook of Financial Econometrics: Tools and Techniques

270

154

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Section: Short Yieldsmentioning

confidence: 99%

Affine Term Structure Models

Piazzesi

2010

Handbook of Financial Econometrics: Tools and Techniques

270

154

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“…Given that estimation biases potentially result from the choice for the short rate proxy (Chapman et al, 1999), the analyses use three alternatives using daily data over the period from January 4, 1988 through October 12, 2005 -the overnight federal funds rate, following Das (2002), as well as one-and three-month U.S. Treasury bill rates also common in the literature.…”

Section: Gmm Resultsmentioning

confidence: 99%

Jump-Diffusion Processes and Affine Term Structure Models: Additional Closed-Form Approximate Solutions, Distributional Assumptions for Jumps, and Parameter Estimates

Durham

2005

SSRN Journal

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Affine term structure models in which the short rate follows a jump-diffusion process are difficult to solve, and the parameters of such models are hard to estimate. Without analytical answers to the partial difference differential equation (PDDE) for bond prices implied by jumpdiffusion processes, one must find a numerical solution to the PDDE or exactly solve an approximate PDDE. Although the literature focuses on a single linearization technique to estimate the PDDE, this paper outlines alternative methods that seem to improve accuracy. Also, closed-form solutions, numerical estimates, and closed-form approximations of the PDDE each ultimately depend on the presumed distribution of jump sizes, and this paper explores a broader set of possible densities that may be more consistent with intuition, including a bi-modal Gaussian mixture. GMM and MLE of one-and two-factor jump-diffusion models produce some evidence for jumps, but sensitivity analyses suggest sizeable confidence intervals around the parameters.

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“…Chapman, Long, and Pearson, 1999), along with aggregate consumption and output at lower frequencies. equations (13) and the equilibrium asset-pricing condition (14), we obtain…”

Section: Discrete-time Formulationmentioning

confidence: 99%

“…As a starting point, we follow Chapman, Long, and Pearson (1999), and use the 3-month interest rate as a proxy for the short rate r f t of the risk-free financial asset, here taken as the US treasury bonds. This interest rate is available from the FRED data set at daily frequency.…”

Section: Data [Insert Figure 3]mentioning

confidence: 99%

Estimating dynamic equilibrium models using mixed frequency macro and financial data

Christensen

Posch

Wel

2016

Journal of Econometrics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We provide a framework for inference in dynamic equilibrium models including financial market data at daily frequency, along with macro series at standard lower frequency. Our formulation of the macro-finance model in continuous-time conveniently accounts for the difference in observation frequency. We suggest the use of martingale estimating functions (MEF) to infer the structural parameters of the model directly through a nonlinear optimization scheme. This method is compared to regression-based methods and the general method of moments (GMM). We illustrate our approaches by estimating the AK-Vasicek model with mean-reverting interest rates. We provide Monte Carlo evidence on the small sample behavior of the estimators and report empirical estimates using 30 years of U.S. macro and financial data. Terms of use: Documents inJEL-Code: C130, E320, O400.

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Using Proxies for the Short Rate: When are Three Months Like an Instant?

Cited by 85 publications

References 17 publications

Affine Term Structure Models

Affine Term Structure Models

Jump-Diffusion Processes and Affine Term Structure Models: Additional Closed-Form Approximate Solutions, Distributional Assumptions for Jumps, and Parameter Estimates

Estimating dynamic equilibrium models using mixed frequency macro and financial data

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