1854 - Reading list

Recommended reading list for the EABCN Training School on "Term structure models and the zero lower bound"

 

Disclaimer: the links below are for the participants attending the above named event only (to help with their preparation ahead of the school) and not for general distribution. The copyright remains with the inidividual authors of the papers. 

 

Day 1: Term Structure Modeling in Normal Times (Monday 7 September)

Dai and Singleton (2000):

- This paper introduces the canonical classifications of affine dynamic term structure models.

Duffee (2002):

- This paper introduces the essentially affine risk premium specification for affine models.

Cheridito, Filipovi´c, and Kimmel (2007):

- This paper introduces the extended affine risk premium specification for affine models.

Joslin, Singleton, and Zhu (2011):

- This paper introduces a way to facilitate the estimation of Gaussian dynamic term structure models.

Hamilton and Wu (2012):

- This paper provides an alternative way to facilitate the estimation of Gaussian dynamic term structure models.

*NEW* Note on Fisher and Gilles (1996):

- This note provides analytical formulas for the conditional and unconditional mean vector and covariance matrices in affine models.

Nelson and Siegel (1987):

- This is the founding paper that introduced the Nelson-Siegel yield curve. Note the short sample and maturity range!

Christensen, Diebold, and Rudebusch (2011):

- This paper introduces the affine arbitrage-free class of Nelson-Siegel (AFNS) term structure models.

Christensen, Diebold, and Rudebusch (2009):

- This paper generalizes the AFNS model class to allow for several slope and curvature factors as in Svensson (1995).

Christensen, Lopez, and Rudebusch (2014a):

- This paper generalizes the AFNS model class to allow for stochastic volatility.

*NEW* Christensen, Lopez, and Rudebusch (2015b):

- This paper uses simulation exercises to analyse the efficiency of the Kalman filter for the estimation of AFNS models with stochastic volatility.

Bauer, Rudebusch, and Wu (2012):

- This analyses finite-sample bias in Gaussian models and introduces a simulation-based method to adjust for it.

 

Day 2: Term Structure Modeling and the Lower Bound Problem (Tuesday 8 September)

Christensen and Rudebusch (2015a):

- This paper introduces the shadow-rate arbitrage-free Nelson-Siegel models and apply them to Japanese data.

Christensen and Rudebusch (2015b):

- This paper applies the shadow-rate AFNS model to U.S. Treasury yields since 1985 and studies its performance in both normal times and near the lower bound.

*NEW* Christensen (2015):

- This paper uses simulation exercises to analyze the efficiency of the extended Kalman filter
for the estimation of shadow-rate AFNS models.

Monfort, Pegoraro, Renne, and Roussellet (2015):

- This paper introduces a novel class of affine term structure models that respects a zero lower bound and can generate prolonged spells with the short rate stuck at its lower bound.

Filipovi´c, Larsson, and Trolle (2014):

- This paper introduces the class of linear-rational term structure models that respects a lower bound and allows for unspanned stochastic volatility. The authors highlight the ability of this model class to price interest rate swaptions.

 

Day 3: Term Structure Modeling and Applications to Policy Questions (Wednesday 9 September)

Christensen and Rudebusch (2012):

- This paper analyses the U.S. and U.K. experiences with QE. It uses real-time term structure model estimations to accurately decompose yield changes around QE announcements into changes to the expectations component and changes to the term premium component.

Christensen and Krogstrup (2015):

- This paper uses an approach similar to Christensen and Rudebusch (2012) to study the response of Swiss Confederation bond yields to announcements regarding the expansion of bank reserves undertaken by the Swiss National Bank in August 2011 in the weeks before it announced the peg of the Swiss franc to the euro on September 6, 2011. The paper emphasises the role that bank reserves can play for the transmission of QE to long-term interest rates.

Christensen, Lopez, and Rudebusch (2015a):

- This paper uses the shadow-rate AFNS model analyzed in Christensen and Rudebusch (2015b) to stress test the assets and income of the Federal Reserve.

Christensen, Lopez, and Rudebusch (2010):

- This paper introduces a joint model of nominal and real yields (CLR TIPS model) and uses it to estimate the inflation expectations and risk premiums priced into nominal yields.

Christensen, Lopez, and Rudebusch (2012):

- This paper demonstrates how the CLR TIPS model can be used to assess deflation risk and value the deflation protection option embedded in the TIPS contract.

Christensen, Lopez, and Rudebusch (2015c):

- This paper modifies the CLR TIPS model to allow for stochastic volatility. This provides more accurate pricing of deflation risk. Also, the factors driving the deflation risk premium are analysed in detail.