Working Paper: A Term Structure of Interest Rates Model with Zero Lower Bound and the European Central Bank's Non-standard Monetary Policy Measures
This paper proposes a ZLB/shadow rate term structure of interest rates model with both unobservable factors and those of non-standard monetary policy measures. The non-standard factors include the ECB's holdings of APP and LTROs as well as their weighted average maturities. The model is approximated by the Taylor series expansion and estimated by the extended Kalman filter, using the sample from July 2009 to September 2015. The results show that the 5-year OIS rate at the end of September 2015 was about 60 basis points lower than it would have been in the case of the absence of the non-standard monetary policy measures.
Keywords: term structure of interest rates, lower bound, non-linear Kalman filter, non-standard monetary policy measures
JEL codes: C24, C32, E43, E58, G12