Federal ID: 91-6001537
ISSN: 0022-1090 (Print) | 1756-6916 (Online)
Don H. Kim and Marcel A. Priebsch
♦ We examine the structural stability of Gaussian shadow rate term structure models in a sample of Treasury yields that includes the “effective lower bound” (ELB) period from 2008 to 2015. After highlighting the challenges of testing for structural breaks in a latent-factor model, we proceed to document various robust pieces of empirical evidence for a structural break. As one of several practical implications, the expected policy rate paths during ELB years are notably shallower in our model that accommodates a structural break compared with a model that imposes structurally stability.
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