A working paper published by the Deutsche Bundesbank looks at the effects that the effective lower bound, or ELB, has on dynamic term structure models.

In The (ir)relevance of the nominal lower bound for real yield curve analysis, Fabian Schupp presents a model for nominal rates and inflation-linked swap rates in the eurozone. The model “explicitly accounts for the ELB of nominal rates”, he says. It is also informed by additional survey-based information on interest rate and inflation