Zero Lower Bound Term Structure Modeling

Nominal yields on government debt in several countries have fallen very near their zero lower bound (ZLB), a situation in which the short-term nominal interest rate is zero, or just above zero, causing a liquidity trap and limiting the capacity to stimulate economic growth. Notably, yields on Japanese government bonds of various maturities have been hovering near zero since 1996. Similarly, many U.S. Treasury rates edged down quite close to zero in the years following the 2008 financial crisis. This book provides a comprehensive reference to state of the art zero bound term structure modeling in an applied setting. Based on the author's practical experience in the field, it covers tractable frameworks, macroeconomic foundations for ZLB models, and applications in the field of macro-finance. Split into seven chapters with two appendices, the book first provides an introduction to the principles of term structure modeling, its application to macro-finance and monetary policy, and the complications introduced by the ZLB for nominal interest rates. The following chapters focus on developing unique frameworks to better evaluate ZLB interest rates and bond prices. Finally, the book looks at applications in the field, such as monitoring the stance of unconventional monetary policy and managing fixed income portfolio risk.