BIS paper uses ‘shadow rate’ to study market expectations

The Bank for International Settlements, Basel
The Bank for International Settlements
Ulrich Roth

Research published by the Bank for International Settlements presents a new approach to estimating market expectations on negative interest rates using the concept of a “shadow rate”.

The approach outlined by Fan Dora Xia and Jing Cynthia Wu in their working paper draws on the idea of a “shadow rate” – a hypothetical short-term interest rate that would hold if rates were not constrained by a lower bound. Their paper differs from others in studying the eurozone and allowing the lower bound to

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