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The term structure of macroeconomic risks at the effective lower bound

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  • Roussellet, Guillaume

Abstract

This paper proposes a new macro-finance model that solves the tension between tractability, flexibility in macroeconomic dynamics, and consistency of the term structures of treasury yields with the effective lower bound (ELB). I use the term structures of U.S. nominal and real treasury yields from 1990 to explore the interdependence between inflation expectations, volatility, and monetary policy at the ELB. The estimation reveals that real yields stay elevated during the ELB due to large premia and deflation fears, produced by a persistent shift in inflation dynamics, with low average inflation and heightened inflation volatility.

Suggested Citation

  • Roussellet, Guillaume, 2025. "The term structure of macroeconomic risks at the effective lower bound," Journal of Econometrics, Elsevier, vol. 248(C).
    • Handle: RePEc:eee:econom:v:248:y:2025:i:c:s0304407623000143
    DOI: 10.1016/j.jeconom.2023.01.005
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    More about this item

    Keywords

    Quadratic term structure model; Effective lower bound; TIPS; Liftoff probabilities; Inflation risk premia;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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